Update 1 – Pre-Market and Morning Outlook

The divergent, negative behaviors in the NASDAQ 100 (QQQ) and technology generally (XLK) this morning are holding back the S&P 500 (SPY) and Russell 2000 (IWM) from making much progress – but the NASDAQ profits are not leaving the market. Instead, they are rotating into other sectors. 

These are not recommendations to buy, but unofficially I picked up some at the money calls in Southwest Airlines (LUV), Disney (DIS), and Expedia (EXPE). I used a screen to look for names in volatility squeezes. Of course, they also have to have liquid enough options for the bid/ask spreads to be reasonable. These names are all in volatility squeeze bases. 

The retail sector fund (XRT) appears poised to break out of an ascending triangle. The Energy sector fund (XLE) is at a new post-pandemic high.

Both the S&P 500 and the Russell 2000 benefit from continued leadership in Financials, but the technology selling needs to abate to let the S&P 500 continue to break higher. The Russell 2000 (IWM) is also moving to break out of a nice volatility squeeze and basing pattern – but still has a bit of a climb to get there.

Due to its weighting, and as mentioned this morning, the negative behavior of the NASDAQ 100 has the potential to derail the entire rally, but that is not the most likely outcome. Stay tuned.

A.F. Thornton