It took three tries, but the NASDAQ finally made its way past 14,200. As we expected, the index moved higher in the immediate aftermath. So far, it’s been textbook. The move north has pushed the NASDAQ to borderline overbought. It’s nothing to be worried about, in our opinion.
Some profit taking in the midst of an aggressive move higher is to be expected, standard stuff. Much like the 1-2-3 pattern we talked about during the most recent selloff, rallies also have some common traits.
About halfway through the eventual full move, Wall Street will hit the sell button to rake in some chips from their market winnings. Usually, they’ll take roughly a third of the most recent wave off the table.
For example, if he most recent rally was 300 points, algorithms will take the market down about 100 points, pivot, and go higher. Typically, the second half of the wave will be in the neighborhood of the first wave. In this example, 300 points. That means the full move from beginning to end should be in the ballpark of 600 points, based on this hypothetical illustration.
With a Relative Strength reading of 70.85, the NASDAQ should have a red day or two in the not so distant future. As a rule of thumb, a measurement of 70 or higher is considered overbought and 30 for undervalued. It might last a day or two or maybe three before bulls take charge and resume the upward thrust.
Investors might consider any selling as an opportunity to buy the dip and add to their strongest performing holdings. What worked in the first leg of the upward move should continue to work well in the second move higher, should there be one.
A mix of technology, oil-gas, and retail owned the top 10 spots on our leaderboard with ARK Next Generation Internet ETF (ARKW) topping the charts. The tech exchange-traded fund (ETF) has plenty of headroom to continue onwards as its approximately $37 below its 52-week high od $191.13 achieved on February 13th. Investors looking to ride a possible wave higher for the NASDAQ and tech stocks might consider adding ARKW to their portfolios.
Netflix, Inc. (NFLX) might be our favorite ARKW holding at the moment. The streaming company offers one of the strongest Return on Equity (ROI) readings, is one of the cheapest in terms of Price to Sales (P/S) with earnings and sales growth in the upper third of the ETF’s holdings.
Pricewise, NFLX is about $60 below its 52week high of $593.29. Shares gapped higher on Friday. Based on Monday’s action, it’s likely the jump in price is a bullish move that could give NFLX momentum and set it on a path to $560 in the next few weeks. If traders can take Netflix through $560, then it should be on course to challenge its 52-week high.
Of course, Netflix, Inc. (NFLX) is only appropriate for investors who can handle more than average volatility and big price swings based on dollar amount.