There are moments in sports where fans know the game is on the line. The bottom of the ninth with the bases loaded and a full count in a tie game; the final 2 minutes of a tied football game; a penalty shot in overtime of an NHL playoff game; a shootout for the win in a soccer match; a win/lose final shot in an NBA game.
That’s sort of where the NASDAQ is right now. The index’s next move will likely be the difference between bulls or bears winning and taking charge of the market in the intermediate term. The tech-heavy index rallied last week, peaking on Wednesday. The quick recovery followed a strong selloff to start 2022.
The clock is ticking and the game between bulls and bears is on the line. In the bullish corner, last week’s peak price of 14,504.82 is the make or break shot. Bears will try to put the 2022’s closing low of 13,352.78 trough the back of the net. Whichever line is crossed fist at the close of the market will be the winning play.
Here is the thing. It could get really ugly if bears win. A new low could trigger a wave of selling, maybe enough to push the NASDAQ into a bear market. The cross of death could also come into play with extended selling. What is the ominous sounding cross of death? It’s when the 50-day average falls from above to below the 200-day moving average. Although it’s not foolproof, the cross of death in widely considered bearish.
Even if bulls come through in the clutch, it’s likely to be tough sledding ahead. The NASDAQ has a bunch of technical traffic overhead. The 200-day average of 14,735 is the first obstacle; then the 50-day average of 14,973 gets in the way; then resistance at 15,250, then… you get the picture. There are plenty of spots sellers are likely to show up if/when the market rebounds.
Investors will want to pay close attention to who makes the winning play. If bears breakthrough the bottom guardrail, then taking a position in an inverse ETF like ProShares Short QQQ (PSQ) might be a consideration as a hedge against loses. PSQ’s objective is to return the opposite of the NASDAQ 100 on a daily basis. For example, if the NASDAQ 100 loses 1%, then PSQ should gain 1%. Of course, the opposite is true. If the NASDAQ 100 goes up, then PSQ goes down.
Inflation and interest rates dominated again with Metals, Mining, Oil and Gas along with Bank stocks dominated the top of our sector leaderboard. Before acting on any new sector(s), we want to see which side of the tape the market takes. Our concern is the NASDAQ makes a new low and selling accelerates, dragging everything down quickly. If that’s not the correct call, then there will plenty of possible entry points in what’s likely to be a choppy, start and stop type rebound if bulls take control.
We certainly don’t want to take new positions in individual companies with the possibility of the NASDAQ taking a nasty spill.