Where the Best NASDAQ Profits Are Right Now -- Plus Good News for JPY and Precious Metals Too
The NASDAQ has been unstoppable.
There’s been seven consecutive weekly rises in the NASDAQ. This is a historic event. It’s happened only 17 times since 1985. And while the path of least resistance seems higher, there's now less upside available than before this historic run.
To my mind, the NASDAQ should reach peak resistance somewhere at current levels.
In fact, I'm already seeing a lot of stocks on my radar flashing warning signs of an imminent rollover. So despite the fact the index is rising, many stocks including Tesla, Okta. Quantumscape, Peloton and so on are no longer looking bullish.
If you’ve made some money on this run, perhaps it's time to buy insurance and hedge your bets by selling some call options or buying put options against your position.
This run is getting long in the tooth, especially when interest rates aren’t following as they should.
That’s because when we have a rising economy we should also have rising interest rates. Yet this 10-year bond yield chart shows rates have trended lower from a peak of about 1.75% in April to 1.4% today.
Bond investors are usually the smartest investors and farther ahead of the curve than stock investors. This declining yield suggests the economy is not as strong as the stock market indicates.
So there’s some dislocation between bonds and the S&P and NASDAQ right now. If the economy was humming, we’d likely see rates going higher. Yet we're seeing the opposite.
Bond investors seem to be warning of something the stock investors aren’t seeing.
Next I take a look at the disconnect between individual stocks and the indexes soaring to all-time highs.
Here’s Peloton (PTON):
This is the famous exercise bicycle maker that did so well during the coronavirus lockdown. Last week Peloton rose to a recent high but by the end of the week, the sellers were in control and it closed on the low. This is a key reversal.
PTON is also tracing out what could be a head and shoulders price pattern. That suggests lower prices are on the way, so aggressive traders should consider selling PTON short below last week’s lows with a stop loss above last week’s highs.
That’s a good risk/reward trade over the next couple weeks.
Here’s Beyond Meat (BYND):
As with Peloton, it looks like the recent surge in BYND just ran out of steam.
BYND saw a weekly reversal where earlier in the week, it went to $160 but by the end of the week, it collapsed under $151. Meanwhile BYND is forming a large double top. Perhaps this key reversal is showing the path of least resistance is lower over the next couple of weeks.
Here’s Tesla (TSLA) at the daily level:
Tesla is trading within the confines of a descending triangle. It recently exited that pattern, but increasingly this looks like a bull trap where anybody chasing this “breakout” is likely to get hurt.
I feel TSLA is going to drop thanks to the combination of an inside bar coil seven days long plus a key reversal on the most recent day. Telsa could retest the $550 area in the next few weeks.
Besides PTON, BYND and TSLA, I also see an emerging opportunity in Okta (OKTA):
There’s a double top here plus two key reversals afterward, suggesting the sellers are in control. If prices drop below last week’s low at $239, we’ll likely see considerable follow-through to the downside given the previous bear pattern.
I'm looking at getting short here to take advantage of what could be an emerging downtrend in OKTA.
Meanwhile those of you who followed me for a while know that one of my favorite targets has been Quantumscape (QS):
The path of least resistance in QS has been down ever since it formed a head and shoulders price pattern. Every time QS has rallied, I’ve shorted it.
I'm going to miss this trade opportunity because I've made all kinds of money shorting QS, but as it hurtles closer and closer to zero, this is no longer going to be a viable trade.
However, I did take advantage of the recent short covering rally last week when I saw a pair of key reversal form near $30.
Those reversals indicated QS was ready for another move lower and I got short at $29.75 while also buying some 25 puts expiring on July 16th.
QS is now $3 lower, so my huge bet that we're going to continue to see a drop in QS is paying off so far. I feel QS will test its all-time lows around $23.50 and likely break lower after that.
The lesson from all this is that despite the NASDAQ hurtling to all-time record highs, there are all kinds of stocks flashing warning signs of an imminent rollover.
The internal breadth of the market is starting to contract and could be a preview of coming attractions in terms of an overall market drop.
Now let’s change tack and look at DXY (the dollar index).
While I think DXY has peaked for the long term by virtue of the head and shoulders price pattern, DXY hit major support at the 90 level.
The current trading range is likely to persist for some time, perhaps through the summer. So dollar trading is somewhat precarious with the Euro looking weaker and the Australian dollar looking stronger.
However, I want to highlight one dollar correlated trading pair that I really like going forward: USDJPY (the dollar against the Japanese yen):
I believe there’s a meaningful opportunity here by virtue of what USDJPY is doing as well as what it’s not doing.
For the last couple years, USDJPY has trading within the confines of a descending triangle. Every time it hit the trendline of that triangle, it dropped – often substantially.
However, USDJPY is now exhibiting different tendencies. Instead of lower highs, we’re now seeing higher highs and higher lows.
The original breakout from the triangle seemed to be a fakeout (a bull trap) and I felt it would return to the triangle. But after the initial sell off from the breakout, there’s been an upward channel that’s broken out above the triangle once again.
When a market doesn't do one thing (go down), it's going to do another (go up).
That’s why I believe we’re going to see much higher prices in USDJPY.
A reversal is still possible, of course. But I don’t see any price reversal behavior right now. And the longer this orderly uptrend continues, the better the chances of a major move to the upside.
So I’m guardedly long USDJPY and with one eye on the possibility of a trap. However, the path of least resistance appears to be higher.
Now here’s EURJPY (the Euro versus the Japanese yen):
The most recent bullish price pattern here is the double bottom acting as the head of an inverted head and shoulders.
EURJPY broke the neckline of that pattern to confirm it, then kept on rising until it hit historic resistance. While the price turned back temporarily, there was a bullish key reversal that suggests the bullish momentum is about to resume.
It's very important to see continued momentum to the upside, otherwise EURJPY could slide sideways for some time.
However, it looks like EURJPY is getting ready to retest 134 and any breakout from there would mean significantly higher prices until 136 where another resistance level lies in wait.
If and when EURJPY clears that historic resistance level too, I would expect monster moves in the days, weeks and months ahead. So I think there's a lot to look forward to here.
GBPJPY the British pound versus the Japanese yen) also looks promising with a very similar chart:
This pair is also trading at meaningful historic resistance levels around 155. GBPJPY did back off after hitting that level, but as with EURJPY, there’s a huge double bottom / inverted head and shoulders pattern to back up the bullish case here.
The base of this pattern is very large, so the breakout from the neckline and the test of historic resistance is very, very positive price behavior.
As with EURJPY, the path of least resistance is higher. Especially when there’s a bullish key reversal followed by an inside bar here. Any price movement above that inside bar is likely to give higher prices going forward.
Now let’s take a look at GBPNZD (the British pound versus New Zealand dollar):
Just as in prior periods, once GBPNZD hits the 1.99 – 2.00 area it backs off.
I'm somewhat disappointed because I thought this pair would make some headway by now. GBPNZD is certainly challenging to trade. However, the bull trend is still intact and we have to accept that erratic behavior is part of the game with GBPNZD.
The path of least resistance (or lesser resistance) is higher although there may be a pullback to 1.94 at the trendline before another move higher.
I remain bullish because of the multiple double bottoms.
If you're super aggressive, just buy the sell offs here while keeping an eye on support at 1.94. If that breaks down I’ll have to re-think my bullish stance here.
Now for the precious metals, starting with XAUUSD (spot gold):
Spot gold has traded within the confines of a huge ascending broadening formation for some time.
An early observation of this pattern enabled me and the members who followed my signals to start shorting gold at $1,950 all the way down to the $1,700 price level.
I also observed very consistent price behavior along the lower support line of this ascending broadening price pattern. Last week was another good example with a key reversal at the main support area.
I've been on the sidelines with gold, but that key reversal last week suggests it’s now worthwhile to step in and probe the long side. There’s a lot of support at the $1,650 -- $1,750 price level.
Just be aware that what goes straight down isn’t likely to go straight up. There should be some sideways price action before another serious move up.
Consider buying gold with a limit order under $1,760 while remember that limit orders may not get filled before the move higher.
The alternative is a buy stop above last week’s highs.
In any event, last week’s lows at $1,750 are likely to hold for at least a couple of weeks and it’s worth looking at the long side with a speculative trade if you’re so inclined.
Here’s XAGUSD (spot silver):
The long-term governing pattern is the bullish inverted head and shoulders here.
Once silver broke out past the neckline, higher prices were on the way. There’s been a lot of consolidation since, but there’s also a bullish ascending triangle here.
Altogether this is favorable price behavior with successive higher lows and lately a key reversal in the past two weeks where silver grabbed a foothold at $25.
It looks like silver is going to probe the upside of this ascending triangle price pattern around $29 - $30 relatively soon.
As with gold, it’s worth taking a speculative long position in silver because you can limit your risk by placing your stop loss below recent lows. It’s a fairly aggressive trade but it could be quite rewarding.
And that’s it for the week!
To summarize, I’m bearish on many of the second tier NASDAQ stocks (especially QS) as they’re showing weakness ahead of the NASDAQ index itself.
I’m short-term neutral on the US dollar and bullish on the yen pairs including USDJPY, EURJPY, and GBPJPY. I’m still bullish on GBPNZD despite recent setbacks. And I’m cautiously bullish on gold and silver due to recent key reversal price action at support.
I wish you a very healthy and prosperous trading week.
Mark "StockBondDivergence" Shawzin