There is a photo stand located next to the exit of most rollercoasters. Pictures are snapped right as the ride starts its big drop. Most of the photos show terror on the faces of the passengers; although, they are laughing and giggling looking at the fear on other riders’ faces as they search for their own picture of embarrassment at the photo counter.
It would be interesting to see the looks on investors’ faces when the NASDAQ was flirting with 13,000 during Monday’s trading session. In all likelihood, their expressions would rival any rollercoaster spoof. But, by the end of the trading day, a feeling of whew, that wasn’t so bad replaced early day panic.
The NASDAQ opened at 13,481.50, dropped to 13,094.65 and closed at 13,855.13. That’s a 5.8% swing from bottom to close, straight crazy.
So, what’s next for nervous investors?
Odds are the market continues higher after Monday’s reversal. Despite the sudden recovery, the NASDAQ is in oversold territory with a relative strength reading below 30. (Thumb rules… above 70 is overbought, below 30 is oversold.) If we’ve made the correct call here, then the NASDAQ could rebound to its 200-day moving average of 14,735.50 and falling.
Much like the slide lower, a snap back could be sharp and quick, but don’t get too excited. The structural problems remain inflation, supply chain, higher interest rates, a weakening consumer, and now the prospect of conflict in Ukraine.
In the near term, investors might think about using any rally as an opportunity to unload underperformers and use the cash to reallocate towards market leaders. Longer term, we’ll be on the hunt for signs of a reversal, leading us into the next uptrend. We’ll keep it cautious until a clear pivot point is established.
Utilities hung in there, down just 0.81% as the top performer last week and it just gets ugly from there. We’d expect some of the worst performers like semiconductors, clean energy, and biotech to have the most bounce in them if the markets rally. However, there is no way we’d consider taking a sector position prior to a reversal. As the market axiom goes, don’t try to catch a falling knife. If you are so inclined, we’d view a possible upswing as a short-term trading opportunity.
It’s the same story here. The rubber band recoiling could offer some short-term trading opportunities, especially in hard hit technology stocks, but it’s way, way too early to call a bottom here.