Before we get started, we hope everybody has a safe, happy, and fulfilling Thanksgiving. May it be warm, spent with family and friends, great food, and a sense of happiness and inner peace when you place your head on the pillow at night.
What a crazy day to start the Thanksgiving-shortened trading week. Stocks opened higher, the NASDAQ turned south before mid-day, and then the indexes took it on the chin after President Joe Biden renominated Jerome Powell to head the Federal Reserve.
Don’t take the NASDAQ’s 202.68 drop as a sign Wall Street disapproves of Powell remaining as the Fed Chair. It’s really more of an old trading axiom to buy the hype and sell the news. It was expected that Powell would hold onto his position.
However, the market’s action in the aftermath of the news does have forward leaning consequences. The NASDAQ’s open popped the index out of the trading box we described last week, but the selloff put the index squarely in the middle, stuck in no-man’s-land. It also pushed the DOW Industrials Average to the edge of a cliff and lower, and the DOW could have a date with its 50-day moving average of 35,214. Meanwhile, the S&P 500 is between a pair of guardrails like the NASDAQ, 4700 on the upside and 4650 on the downside.
All last week’s good work and early morning pop put investors right back where we were before, in between upside resistance and downside support. So, we do what we did last week, wait for the NASDAQ to take a firm position outside of the box it is currently in.
If the NASDAQ can close above 16,060, then index investors might consider adding Invesco QQQ Trust (QQQ). If the tech dominated index closes below 15,600, then ProShares Short QQQ (PSQ) could be the correct call.
As much as we’d like to be bullish, our 30+ years of experience has taught us to let the market declare technical winners and not to pick a side too early. At the very minimum, you’ll be wrong half of the time by acting too early.
Invesco QQQ Trust (QQQ) was the third best performer on our leaderboard in the last week and SPDR S&P 500 ETF Trust (SPY) was number eight on the list. Normally, sectors outperform more diversified index ETFs like QQQ and SPY. It’s been our experience that Wall Street is a tad nervous when major indexes outperform more concentrated sectors/industries. It’s a move to “safer” and away from more “risky” choices. The observation is confirmed with only eight sectors/industry specific ETFs we monitor generating a positive return in the last week.
The combination of our market and sector reviews gives us pause in the near-term. Hopefully, it’s just temporary and the NASDAQ jumps through the top of its box and the sector performance favors industries over indexes by this time next week.
Once again, we don’t want to take a position in a stock without favorable conditions for the overall market combined with strength in specific sectors.