Technology bears on Tuesday finally got a reprieve, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 closed at 13,673, a decline of 1.3%. The weakness came as big-cap technology issues finally began to fall under their own weight.
One of the more interesting developments over the past week has been the flood of bullish interest into these issues. From stories about highly regarded hedge fund managers betting big on artificial intelligence, to a barrage of new “buy” recommendations from investment research firms, all of the news flow has been positive.
I wrote on the weekend that the second quarter earnings report due Wednesday from Nvidia (NVDA) will be a good litmus test for bulls. Again, executives at the semiconductor firm will be extremely optimistic about the outlook for AI infrastructure, and the financial results are certain to be positive.
Moreover, bullish interest from Wall Street analysts is likely to continue. It will be interesting to see if hedge fund managers sell into the good news, creating a short-term top. Some of the selling on Tuesday was traders undoubtedly getting ahead of this possible event.
The close for the benchmark NDX below 13,750 is troublesome. The next key support level is 13, 415, and that level is in play for Wednesday. Bulls need to dig in.
The NDX Loop: Members bought the ProShares Ultra QQQ (QLD) on May 2 at $48.20. The 2x leveraged index fund closed Tuesday at $52.83, up 9.9% 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 $50.43 STP
Behind the Headlines: The Nasdaq Composite dropped 1.3% to 12,560.3, while the Dow closed 0.7% lower at 33,055.5. Materials, technology, and communication services led the decliners among sectors. Energy was the sole gainer. Breadth favored decliners 5-3. There were 110 new lows vs. 94 new highs.
White House officials met with Republicans on Tuesday, but the two camps remain divided over how to rein in the federal deficit, Reuters reported.
Although President Joe Biden and House Speaker Kevin McCarthy described their face-to-face meeting on Monday as "productive," a debt-ceiling deal could still not be reached to avoid a potential default, CNBC reported Tuesday. McCarthy reportedly said at the House Republicans' weekly conference meeting Tuesday morning that they were "nowhere near a deal."
On Monday, US Treasury Secretary Janet Yellen said in a letter to congressional leaders that it is "highly likely" that the agency will no longer be able to satisfy all of the government's obligations if Congress does not increase or suspend the debt limit by early June.
CNBC reported Tuesday that a "significant group" of House Republicans questioned the accuracy of that deadline. "We'd like to see more transparency on how they come to that date," House Majority Leader Rep. Steve Scalise said at a news conference, according to the report.
