Happy Saturday, Traderade family! The week that was had no shortage of twists and turns, especially on options expiration Friday, where the market seemed to show some signs of wanting to reverse.
The QQQ ETF, which mirrors the NASDAQ 100 market cap weighted index, showed some encouraging signs last week as it re-tested a downtrend reversal and then bounced through a key area of supply. Momentum is strong, and QQQ closed the week above the 8-day exponential moving average (EMA), an indicator that many traders watch closely for signs of directionality.
40.93% of NASDAQ components are above their respective 50-day moving average. During the selling in May there were less than 7% of NASDAQ components above that same moving average. What's interesting is that the momentum indicator in the above chart also began to show a sell signal as early as the second week of April. From that point, selling intensified.
The sell signal for this chart is as simple as seeing the blue bars sink under the orange bars, and that trend continues for several days. The buy signal is the opposite, where blue bars rise above the orange bars and that trend continues for several days.
While the above indicator is a relatively new one (in that I've only been using it for about 4 months), I do find it to be helpful in gauging the path of least resistance in the NASDAQ over the intermediate term. I will also be adding it as a feature for Traderade members to always have access to under our up and coming charts section!
Another encouraging sign is the number of new lows on the NASDAQ are trending lower, which of course makes sense with the number of stocks above their 50-day moving averages trending higher. But it's also a sign that the violence of selling has, to some degree, subsided.
Most long duration assets caught a bit, but crypto, which is more of a speculative relief valve for excess liquidity, did not catch up. Underneath the surface we saw long bonds, NASDAQ stocks, ARKK, and both IG and HY corporate debt bid up. These assets have been moving in tandem for most of 2022, demonstrating a sort of synchronized deleveraging. The countertrend pops have been rather violent at times, but overall the trend does remain down.
There may be some additional room the the upside in NASDAQ stocks and some other long duration assets, but we remain in a bear market. So any sorts of opportunities here are probably best viewed as trades rather than investments, unless one has a very long time horizon and high appetite for risk. I still believe that we won't see a meaningful longer term reversal in markets until the Fed pivots, and I don't feel that's destined to happen anytime soon.