Bulls on Friday came extremely close to conceding a big decline, but late short covering pushed the Nasdaq 100 into positive territory, states Jon Markman, editor of Strategic Advantage.
The benchmark closed at 14,942, a gain of 0.9%. The bulls should not get too excited. The leadership groups that carried the NDX sharply higher in the early part of the week came under pressure. Shares of Nvidia (NVDA) finished Friday at $460.18, down 2.4%. The stock traded Thursday to $502.66 following blowout earnings.
Bears are making the case that stock prices fully reflect all the possible future good news. It’s a compelling narrative, especially given the discrepancy between the strength of the Nvidia results and the subsequent weakness for shares.
Bulls should also worry about the weakness of the Nasdaq 100. The benchmark continues to trade below its 20-day and 50-day moving averages. Those markers, at 15,070 and 15,214, respectively represent considerable overhead resistance. There is no reason for bulls to believe that Friday’s intraday rally is the start of a new bullish trend.
The more likely catalyst for the rally from the session lows was short covering ahead of the weekend. There have been some positive developments. Intuit Inc. (INTU) and Workday (WDAY) managed on Friday to record upside breakouts. These companies are probably not large enough to carry the NDX out of its current morass, however, the firmness in these second-tier but primo companies is intriguing.
Bulls will need much more of this in the week ahead. I expect that Friday’s late rally will be undone Monday morning and that the NDX will proceed toward its first important support level at 14,558, the August 18 low. If that level fails, the next important support level is 13,656, the gap created by the May 24 to May 25 rally.
Double Trouble: Our Nasdaq 100 Timing Model continues to point south. On Aug. 23, members purchased ProShares Ultra Short QQQ (QID) for $13.25 and closed half of the position Thursday at $13.75, a gain of 3.8%. Now set up to sell the second half at $16.30. Set a new protective stop at $13.43.
