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TESLA (TSLA)

I thought last night Tesla shareholder and “battery day” event was impressive overall. But it lacked clarity, and the longer time horizon apparently didn’t live up to the hype for a stock already up 400%+ year to date. Investors aren’t patient.

The stock is down 10% today and looks poised to retest the 50-day moving average. The lower high makes me believe it won’t hold this time. The stock is likely to drop to the $270 level next.

Given its lofty valuation (even for speculative future results), I wouldn’t add to my position unless it got back to the vicinity of the March highs around $194. Long term I do like the companies opportunities as now not only an auto-tech company but a battery & auto tech company. I’ll always hold a position as long as Musk remains in charge. I think it’s important to support these ambitious entrepreneurs – from a business standpoint – despite their perceived shortcomings in other matters.

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NASDAQ 100 ETF (QQQ)

A lot rides on the direction of the broader market. After the breakout to new highs, stocks have lost steam in the last few weeks. The Nasdaq 100 (QQQ) has now spent a few days below the 50-day moving average.

Based on seasonality (which we’ll discuss next) and historical patterns (also discussed next), I would not be surprised to see a drop to at least $251.15, and probably closer to $237.47 (still another 10% below current prices) before the market builds a base for its next rally.

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In terms of seasonality -during election years – late September through late October has shown weakness for whatever reason. If this seasonality plays out, we could be in for a few more weeks of selling. This is not unusual and its not the end of the world. Markets were up between 60% and 80% off their March lows. And markets don’t move in a straight line.

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S+P 500 (2011)

In a historical context, it's quite ordinary to see a pullback to the 200-day moving average after a breakout to new cycle highs. In 2011 (after the 2010 flash crash), the market found support after a steep decline, rallied back to a new cycle high, then retraced back to the 200-day before beginning the next leg higher.

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S&P 500 (2015)

2015 was no different. The S&P 500 broke out to new highs, consolidated, then fell towards the 200-day average before the rally could resume.

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S&P 500 (2018)

Same with 2018.

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S&P 500 (2020)

Fast forward to today and we have a similar setup. The S&P and Nasdaq broke above its pre-COVID highs and now the pullback commences.

As I type this, the S&P 500 has fallen back to Monday’s low at 3234 support level. I don’t see much support below after this until we hit that 200-day moving average. And then the next real support zone comes in the 2940-3020 zone.

My guess is as good as anyone’s in regards to how this will all play out. I suspect the S&P 500 will eventually drop to that lower support zone before all is said and done.

Market sell-offs are never fun but they are normal. It will eventually set up the next leg higher. For those fully invested in an investment strategy that fits your timeline and risk tolerance, stay the course. For those who have extra cash on the sidelines, get you shopping list ready and take advantage of the “discounts”.