On Tuesday, the Nasdaq 100 (QQQ) came close to clearing the 50-day moving average at $321.08. This was the second attempt to clear this moving average, with the first attempt happening last week. Though the QQQs were unable to hold over the 50-DMA, they were able to hold over its short-term 10-DMA. The next test will be if NASDAQ holds this current price range and makes a 3rd attempt or breaks lower.
If the price reverses, we could be looking at a retracement to recent lows at around $297-300. On the other hand, Russell 2000 (IWM) broke under the 50-DMA.
Next, we watch for IWM to confirm its break of the major price level with a second close under. This means that 2 of the 4 major indices are under their major moving averages. These caution phases are meant to be exactly what they are -- cautionary tales, but not necessarily the end of the bull run. When the major indices are not in alignment, price action tends to get more volatile as traders/investors liquidate positions due to unclear market directions.
Jerome Powell, Chairman of the Federal Reserve, has also displayed some indecision when it comes to the future economic outlook. Recently, Powell stated conflicting views that the economy was "much improved" but the economic recovery was "far from complete." These vague claims do not help the market's already uneasy stance.
Some of our recent articles have talked about choppy market environments, concluding that if you are not sure what to do from an investing/trading standpoint, often it's best to sit on your hands and wait for clarity. Additionally, if you are already heavily invested, you could decrease risk exposure by cutting down position sizes or eliminating ones that are not working.
- S&P 500 (SPY): 385.80 next support the 50-DMA
- Russell 2000 (IWM): Broke the 50-DMA at 220. Watching for second close underneath
- Dow (DIA): Next support area 320
- Nasdaq (QQQ): Still needs to clear 321, the 50-DMA
- KRE (Regional Banks): 50-DMA at 62.69
- SMH (Semiconductors): Filed second close over 50-DMA at 238.17
- IYT (Transportation): If cannot hold 245 area, watch 240 next
- IBB (Biotechnology): Next support 148.50 with main support the 200-DMA at 144.54
- XRT (Retail): 85.69 support
Assistant Director of Trading Research and Education