On Tuesday, we talked about an inside day pattern building consolidation for the next move. That pattern did not disappoint. QQQ and IWM gapped lower, closing in an unconfirmed caution phase, while the SPY and DIA have already confirmed a caution phase.
A caution phase is when the 50-day moving average is above the 200-DMA and the price sits between both moving averages. To confirm the caution phase, the price needs to close below the 50-DMA for 2 consecutive days.
We can blame a few factors. Lack of stimulus is one, although we do wonder, with the election around the corner, if that will change. Europe closing down is another huge factor. And perhaps, if we lived under a rock, we would say from a technical standpoint that the market had a huge double top.
Without expecting any of these problems to be answered overnight, we can always count on our good old charts.
A move lower in the SPY (S&P 500) could bring us down to support at $319 or $312 the 200-DMA. The QQQs (Nasdaq 100) have a similar situation with next major support at $260. Hopefully we can retest the 50-DMA, but, if not, $260 is the next spot to watch.
Today, DIA (Dow Jones) could have made support at $265, with a potential double bottom if it can head higher tomorrow. If not, the next obvious support is the 200-DMA, sitting at $262.
I have the most hope for IWM (Russell 2000), as it sits closest to the 50-DMA. If it can't close over the 50-DMA, then, without clear support on a daily chart, the next best price to watch is $149. This lines up with the 200-week moving average, the monthly low, and the monthly Bollinger Band midline.
Can we expect a bounce back to the 50-DMA? Maybe - but it'll take a stimulus package and nothing less.
- S&P 500 (SPY): Watching 319 as support
- Russell 2000 (IWM): $149 next support from 200-WMA
- Dow (DIA): Can it hold 265, or will we see the 200-DMA next?
- Nasdaq (QQQ): Next support 260
- KRE (Regional Banks): Unconfirmed recovery phase
- SMH (Semiconductors): Broke the 50-DMA; unconfirmed caution phase
- IYT (Transportation): 200 support where the 50-DMA is
- IBB (Biotechnology): Possible move towards 200-DMA
- XRT (Retail): Watching to clear back over 50-DMA. Unconfirmed caution phase.
Director of Trading Research and Education
Assistant Director of Trading Research and Education