Mish's Market Minute

Why Tuesday's Volume Patterns are So Important for the Major Indices

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The major indices closed surprisingly well on Monday. Although the initial morning gap-up did not hold, the Dow Jones (DIA) and the Russell 2000 (IWM) were able to make a comeback, with support from IWM's 50-DMA at $221.58 and the low of 8/19 at $347.31 for DIA.

On the other hand, the S&P 500 (SPY) and the Nasdaq 100 (QQQ) have not run into main support from their major moving averages and are most likely holding due strength found in the DIA and IWM. This means that if the SPY and the QQQ are going continue higher without making a full pullback to support, they will need both the DIA and IWM to lead them.

The reason why DIA and IWM are qualified to lead the market higher is that both held key support levels while the SPY and QQQ did not. However, if the QQQ and the SPY do not hold over Monday's low, watch for them to head towards their 50-day moving averages at $441 for the SPY and $368 for the QQQ.

With that said, if Monday's dip buyers were correct, Tuesday should bring continued strength. One way we can tell if buying is strong is by watching intra-day volume compared to the average amount. To do this, try watching volume on a 5-minute chart compared to past trading days. What we are looking for is higher volume as the market moves up.

If tomorrow's price action holds or rises on weak volume, stay cautious, as the indices could be weakening and looking for another downturn.


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The market is at a very pivotal point right now, we are either in for a much deeper correction or this is another dip into support. On the latest edition of StockCharts TV's Mish's Market Minute, Mish weighs the evidence and dives into the macro, looking at where we should potentially be putting our money as we go forward.


ETF Summary

  • S&P 500 (SPY): 441 support.
  • Russell 2000 (IWM): Closed over the 50-DMA at 221.58.
  • Dow (DIA): Back over support of 347.31.
  • Nasdaq (QQQ): 374.22 low to hold.
  • KRE (Regional Banks): Like this to stay over the 50-DMA and clear the 10-DMA at 64.85.
  • SMH (Semiconductors): Doji day. Also holding over the 10-DMA at 271.72.
  • IYT (Transportation): Flirting with the 200-DMA.
  • IBB (Biotechnology): 168.15 support from the 50-DMA.
  • XRT (Retail): 91.49 support.

Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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