Streak Broken, Trend is Not

At the beginning of each month, I produce a market and economic update for our clients that I then post to our YouTube channel. In the most recent video, I highlighted the fact that we had just seen nine up weeks in a row. I am not sure how often that happens, but it seems like a pretty rare feat. No market moves straight up forever – especially with the momentum we had witnessed during this nine-week rally. As a result, Friday’s selloff really should not have been a surprise. It was simply bound to happen.

So, the nine-week streak is broken. But the positive trend is still very much intact. That said, if you are managing risk, it is wise to consider how deep this correction could be. Furthermore, where is a reasonable place for the broad markets to find support?

IWV Support Zones

The second chart for today is the daily candle chart for IWV, the iShares Russell 3000. Unfortunately, the Russell 3000 is also cap-weighted, so we have to keep that in mind. However, it is a broader measure of the United States stock market, so I like to use it as one of my go-to charts for broad market action.

The middle pain of this chart is the Advance-Decline Line. Note the red arrow. I added the red arrow to help my eye see that the Advance-Decline line was meandering across the screen, not up and thankfully, not down. Looking at the price chart, you see the green arrow. So, while the price of IWV was marching higher these last nine weeks, the advance-decline line was sorta “meh”. It was not quite diverging. But it sure didn’t seem like it was confirming, either.

In the price chart, you’ll also note three light blue rectangle zones that I’ve added to the chart. In my estimation, these are reasonable areas where IWV might find support. I had my eye on that top zone at the beginning of the month. Given that we had just completed nine up weeks in a row, we should expect a negative week, as that streak cannot reasonably continue. As a result, this first top zone was a reasonable area for IWV to return. The top of this zone represents a minor pullback of ~4% on IWV.

The next two zones are ~6-7% off the highs and ~9-10% off the highs. Any of these three zones are candidates for support. If we find stability there, it could offer low risk entries. But we do not just blindly buy the dip ... for the dip could keep dipping.

NASDAQ Healthy

The rally from these last nine weeks has absolutely been driven by the tech sector. The NASDAQ, for example, had rallied ~30% off the March 30th low. Since this space has been the leader, we ought to examine it further.

Using the same practice of simply drawing natural support zones, we see that the NASDAQ has already entered the first one. So, it might find support here. But if you look at the bottom pane, where I’ve got the 14-period RSI displayed, you’ll see that the NASDAQ did not reach the classic “oversold” levels ... yet. So, it is likely pre-mature to expect a rally on Monday. But that’s not the objective. We are not trying to pinpoint the exact top nor the exact bottom. You are trying to use the weight of the evidence to lead your decision making.

One more point before we discuss SpaceX.

Look in the middle pane. That’s the percent of the NASDAQ that is above their own 200-day moving average. Even after Friday’s selloff, this looks healthy to me.

SpaceX IPO

You’ve likely heard, SpaceX is going public. Personally, I’m tired of hearing about it. No, I’m not buying it. Generally speaking, I’d strongly discourage anyone from buying it ... at least not right out of the gate. Why?

Lemme show you META:

I’m using META as an example because it is the last IPO that I can easily recall that had a ton of fanfare, i.e. hype. Has META been a success since its initial offering? Undoubtedly.

But take a look at what happened after the shares hit the secondary market. While META rallied strong at the open, it then cratered by the end of the day. Then, over the next several months, the shares traded down close to 60%. So, if you really wanted to own META, you would have been much wiser to wait for the evidence to lead you in. Looking at this chart, the earliest I would have considered this stock would have been late November. I did not buy it then, nor do I think that’d be a great spot to be a buyer. However, that’s the earliest I would have considered it. This is, in my view, the first spot where the evidence is suggesting the stock might be ready to advance higher. Why buy it before that evidence appears?

In general, I think IPO should stand for Ignore the Public Offering.

NVDA Still Head ‘n Shoulders Above the Rest?

The final chart for today is of NVDA. While I’m not one who makes decisions off traditional chart patterns, I reckon we could argue that NVDA might have just created a head and shoulders top. If so, the way I see it, Friday’s action crossed through the neckline which, if I remember my CMT studies correctly, is a sell signal.

What do you think? Look me up on LinkedIn and let me know what you think. Do you think this is a head and shoulders?

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Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.

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