On Tuesday, Janet Yellen commented that "[i]t may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat." The market was already trending lower on the day after its recent teetering around new high territory. Clearly, Yellen did not help.
However, the main index to break down Tuesday was the tech-heavy Nasdaq 100 (QQQ). The QQQs had been rangebound between highs at $342.42 and $333.97 for most of April. On Tuesday, it gapped lower and continued towards its 50-day moving average at $324.91. This will be the next support area to watch for the major index to hold.
Let us check how the other indices fared through Tuesday.
- The Russell 2000 (IWM) barely held over its 50-DMA at $223.27.
- Dow Jones (DIA) is sitting roughly $1 away from new highs at $242.43.
- S&P 500 (SPY) is holding over support at $410.59.
The key takeaway is that other indices are still at or over their support areas.
Additionally, on Monday, we talked about the importance of the transportation sector (IYT) holding near the highs as an indicator for underlying market strength. Now, with two of the major indices lingering near their 50-DMA, we can test our theory if the IYT continues to help the market hold or if it begins to selloff.
We would be way more negative had IYT closed under yesterday's low after making new all-time highs. But it held and, therefore, remains the leader. Furthermore, junk bonds (JNK) are holding their 50-DMA, which is where we look for risk appetite. Therefore, we could see a turnaround Wednesday or, if IYT and JNK gap lower, a much uglier continuation downward.
ETF Summary
- S&P 500 (SPY): Resistance 420.72.
- Russell 2000 (IWM): Watching to hold over 50-DMA area at 223.27.
- Dow (DIA): Needs to clear 342.43.
- Nasdaq (QQQ): Next support at 324.91.
- KRE (Regional Banks): Support 67.41.
- SMH (Semiconductors): Watching to fill gap at 239.42.
- IYT (Transportation): Held over yesterdays low.
- IBB (Biotechnology): Next support 146.73.
- XRT (Retail): Held the 10-DMA at 93.90.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
