On Tuesday, the Nasdaq 100 (QQQ) broke the 50-day moving average before the end-of-day rally brought it back over. This created a reversal pattern we like to call an expansion day.
An expansion day is formed when a large range day crosses over a major moving average, in this case the 50-DMA. The pattern shows that large amount of buying was able to push the price over a key resistance/support level with ease.
When looking at the chart of the QQQs, you can see that not only did the price clear over its 50-DMA, but it was also able to fill the gap left from Tuesdays opening price. Filling the gap is another important level to break, as it shows short-term resistance has failed.
With that said, the Nasdaq 100 has a heavy focus of tech stocks which have seen huge runups in price. The last time this index had any correction under the 50-DMA was about 4 months ago in late November. Though today created a reversal pattern, a visit under the 50-DMA could be healthy for the tech-heavy index.
Small corrections can help the market move higher as it supports a refresh of buyers before the next move up. A recent example of this can be seen in the transportation sector (IYT), which recently broke under its 50-DMA only to make a comeback to new all-time highs. Additionally, these types of reversals offer a dip-buying opportunity as the price clears back over its major moving average.
Overall, Tuesday's expansions day pattern show that buyers still have strength and, with the Federal Reserve's support, are looking for the trend to continue higher.
- S&P 500 (SPY): Held over key support the 50-DMA at 378.66
- Russell 2000 (IWM): 230 resistance. New support 215 area
- Dow (DIA): 312 support area
- Nasdaq (QQQ): Needs to hold the 50-DMA at 319.15
- KRE (Regional Banks): 66.04 high to clear
- SMH (Semiconductors): Next main support the 50-DMA at 231.62
- IYT (Transportation): Held 231.53 the 10-DMA
- IBB (Biotechnology): Needs to get back over the 50-DMA at 160.30
- XRT (Retail): Needs to clear 81.46. Closed over 75.28 support
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
