Technology bears on Monday were in full panic mode as their favorite shorts soared, and professional money managers piled into the biggest, most liquid stocks. The Nasdaq 100 rallied to 13,850, a gain of 0.3%, states Jon Markman, editor of Strategic Advantage.
The rally negates the modest loss on Friday and runs contrary to the prevailing bearish narrative that technology share valuations are too rich given a weaker outlook for the global economy. Aggressive selling of defensive shares like Coca-Cola (KO), Campbell Soup (CPB), Pepsico (PEP), and Colgate Palmolive (CL) on Monday was offset by the outperformance of tech favorites.
The S&P Consumer Staples sector lost 1.5% while the tech-heavy NDX gained 0.3%. If pros are worried about macroeconomic developments they are selling (and buying) the wrong stocks. This isn’t too surprising. With the first half of 2023 nearing the end, money managers are desperately chasing the unmanaged benchmark. Consequently, they are buying Microsoft (MSFT), Meta Platforms (META), Alphabet (GOOGL), and even Tesla (TSLA). This development must rankle bears as it does not seem to make sense.
Cue the panic. Aggressive short covering during Monday sent Upstart Holdings (UPST), PacWest Bancorp. (PACW), and Schrodinger, Inc. (SDGR) soaring by 20%, 17.6%, and 19.6% respectively. Panic buying is likely to become a trend. The first important support point for the NDX is 13,750, then 13,390, the rising 20-day moving average. There is no overhead resistance until 14,775, the gap created in April 2022.
The NDX Loop: Members bought the ProShares Ultra QQQ (QLD) on May second at $48.20. The two-times leveraged index fund closed Thursday at $54.19, up 12.4% from the entry level....Members sold half of the existing position on Thursday at $53.30, a gain of 10.6%, which is sweet.
Set up to sell the remaining half position at $58.20 LMT GTC. Set a trailing stop loss at new $49.83 STP
Behind the Headlines: The Nasdaq Composite rose 0.5% to 12,720.8, while the Dow fell 0.4% to 33,286.6. Among sectors, consumer staples led the decliners, while communication services saw the biggest increase. Breadth favored the advancers five-three. There were 135 new lows vs 196 new highs.
President Joe Biden and House Speaker Kevin McCarthy were scheduled to meet in person at 5:30 pm ET on Monday in the Oval Office after negotiators resumed debt ceiling talks earlier in the day, CNBC reported. McCarthy reportedly said "decisions have to be made" at the meeting.
Biden and McCarthy previously described a Sunday phone conversation as "productive," according to the report. In the absence of a deal, the country might default as early as June first.
The exact immediate effect of the government running out of funding is "highly uncertain," DA Davidson said in a note. "Despite a common view that US government spending must come to a full or partial halt without an increase in the federal debt limit, equity investors appear to minimize the risk of 'default' as major equity indices are higher in both April and May."
St. Louis Federal Reserve Bank President James Bullard said he expects two more interest-rate hikes this year, Bloomberg News reported.
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