Goldman Sachs believes the market is going to “melt up” for the remainder of 2021. (1) A melt up is the reverse side of a crash, much like we saw when the market cascaded lower 1000s of points at a time during the COVID selloff. A melt up is just that, up, up, and up some more.
Goldman may indeed be right that the indexes will zoom into 2022. However, we are in the business of what the market is doing, not what it might do. Of course, we are all in for a melt up for some holiday cheer.
Last week, we talked about how the NASDAQ went deep into overbought territory and that the index dropped at least 10% the previous two times it attained bloated relative strength scores. Sellers took control of the action right away with NASDAQ sinking little more than 400 points, about 2.5% from top to bottom.
That’s a long way from 10%.
Bulls returned last Friday to close the week on a strong note. Wall Street tried to take prices higher to start this trading week, but weakness prevailed, ending in the red. As it stands now, the NASDAQ is in limbo. It closed out Monday between the high and low of the recent trading range (as you’ll see on the chart below).
That’s good news because investors have clear lines to monitor. Like Hansel and Gretel, traders have laid down markers for what path to follow. Goldman Sachs may get their “melt up” if the NASDAQ can close above 16,060ish. That would push the Mary of the Markets (where it goes the other indexes are sure to follow) to an all-time high, likely resulting in a strong bullish move. Maybe much higher if Goldman has made the correct call.
On the other hand, if the tech-laden NASDAQ closes below 15,600, then past could be prologue with bears following the path of a correction, like the previous two times the index stretched deep into overbought conditions.
Index investors might consider an exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ) if the NASDAQ clears 16,060 or ProShares Short QQQ (PSQ) should prices go the other way and stumble below 15,600.
Either way, an oversized move could be coming, Goldman Sachs’ melt up or a typical overbought correction.
SECTOR WATCH
Only a handful of sectors we monitor managed to gain at least 1% last week and just 17 posted returns above water. ETFMG Alternative Harvest ETF (MJ) was number on the charts and for the umpteenth time is showing signs of life after months of underperformance. MJ could be poised for a run higher as it finally broke a fourth month descending trend line. However, it’s head faked possible breakouts before. If ETFMG Alternative Harvest ETF (MJ) can close above $15.50, this reversal might be for real, not another hallucination.
STOCK WATCH
The tug of war between melt up and melt down should have a winner by next week. We’ll wait to see if team up or down wins before adding individual stocks to this section.
Rich Meyers
Investing Trends
1 – https://www.nxtmine.com/news/articles/economics/euphoria-is-increasing-goldman-doubles-down-on-market-meltup-call-sees-90bn-in-new-stock-buying-this-week/
