QQQ - The Year-End Rally Could Be Epic

2023-11-06 17:59:18 ET

Summary

• The S&P 500 Index has rebounded by around 6% from its recent low, indicating a possible sustainable bottom and potential for a year-end rally.
• The Index may face resistance at the 4,400 level before moving higher, with a possible pullback to the 4,300-4,250 support zone.
• High quality stocks like Palantir, Block, Advanced Micro Devices, and others have shown positive momentum and potential for much more upside.

The S&P 500 Index ( SP500 , SPX) spiked off the critical 4,100 support level, surging by around 6% off its recent low. While we may have achieved a sustainable bottom, we still need confirmation that the downturn is finally over. The correction was approximately 11%. The worst may be behind us now. Therefore, I'm looking forward to a year-end rally, and due to AI and other constructive catalysts, it could be epic.

SPX 1-Year Chart

The RSI hit 30 - The stock market became significantly oversold recently. Many high-quality stocks got pressed down to exceptionally undervalued levels. We've had a V-shaped rebound, and more upside should be ahead.

However, despite the robust rebound, the SPX could get rejected at the critical 4,400 level before we move higher in the near term. It may take several attempts to break out above 4,400. Therefore, a temporary pullback to the 4,300-4,250 support zone seems plausible and would likely be a constructive phenomenon for the market.

We discussed buying opportunities during our recent update, and here's how some of our favorite stocks/ETFs have done over the previous week.

Invesco ( QQQ ) Trust ETF

QQQ has had a solid 7% rebound off the recent low. However, we must be mindful that the technical downtrend is not yet over, and we should exercise caution in the near term. Nonetheless, intermediate and long-term opportunities remain in the tech space. Thus, a pullback to around $355 could generate significant demand for QQQ and high-quality tech stocks.

My Top Portfolio Position: Palantir Technologies Inc. ( PLTR )

Palantir has had a tremendous move after its better-than-anticipated earnings and guidance announcement. Technically, we must be careful not to form a double top here. However, a likelier scenario is a breakout to new highs soon. Palantir could break out above the $20 level, moving higher to its $25 price target range soon. Palantir accounts for 12.5% of my All-Weather portfolio's holdings, surging 30% in the last few days.

Block ( SQ )

Block is another stock that we discussed recently . Shares have cratered to unimaginable levels. Block's stock was at $260 just two years ago. While it was significantly overbought and overvalued then, everything has limits. The stock has to bottom at some point. People screamed sell recently, but I wondered why. Why sell Block down here after a staggering 85% decline?

Moreover, fundamentally, there's nothing wrong. Block recently reported better-than-expected results, stronger-than-anticipated guidance, and a $1B share buyback plan. This stock likely put in a lasting bottom here and has a high probability of moving significantly higher.

However, we could come back to close the gap at $45 first. Returning to the $45 level would be a substantial long-term buying opportunity. Block surged by as much as 38% off its recent bottom, closing up by about 28%. At 3.2%, Block is a substantial portion of my portfolio holdings.

Advanced Micro Devices ( AMD )

What happened? AMD recently traded down to $93. Moreover, initially, the market didn't seem happy with AMD's earnings announcement . Nonetheless, AMD became cheap, and shares are still undervalued relative to their long-term revenue potential, profitability, and the stock's likely price range (future). AMD's rebound has been 20% from its recent low. There is a high probability of more upside for AMD as we advance. At 5.6%, AMD is the All-Weather portfolio's most significant holding after Palantir.

Other top stocks' performance over the past week:

• Alphabet ( GOOG ) ( GOOGL ): 7.5%
• Amazon ( AMZN ): 15%
• Tesla ( TSLA ): 16%
• Nvidia ( NVDA ): 12.5%
• Twilio ( TWLO ): 8%
• Sea Ltd. ( SE ): 20%.

The Bottom Line: More Upside Ahead

We've seen stellar performance in many top high-quality stocks, and this is likely only the beginning. We could continue seeing outperformance from the top AI plays and many high-quality stocks that got cut down unfairly lately. The recent jobs report was weaker than expected, and the probability of more benchmark increases has decreased. There's more than an 80% probability that the FOMC won't raise the benchmark again, putting us around the top of the interest rate cycle, suggesting that the funds rate could decline in early to mid next year. Therefore, we could see constructive price action from equities, leading to a substantial rally into year-end. My year-end target range for the S&P 500 is 4,600-4,800.

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