Over the past month, the four major indices have rallied to new highs. As seen in the above charts, this is our first pullback since the market cleared key resistance. Although the media has focused on rising inflation as a leading factor for investor worries, we can also learn a lot from pure technical analysis.
While inflation should not be overlooked, it's not the only factor in play. There is a lot about trading that can be made very complicated; however, sometimes the simplest analysis works the best. Therefore, to put it as simply as possible, a quick rally to new highs has seen a lot of buyers, but not much selling.
Once the market began to look weak on Monday 11/8, people began to sell triggering others to take profits, thus creating our current pullback. Looking at the charts, our next support level is previous resistance as seen by the black lines. (The exact prices can be found below in the ETF summary.) If these price levels are reached, they should hold. If not, the uptrend could easily deteriorate. On the other hand, it's possible the market won't reach these support levels, as dip-buying has been in fashion since the initial pandemic crash.
Since this is the first pullback from breaking new highs, investors that have been waiting on the sidelines could see this as their opportunity to finally get a better price in the current uptrend. Therefore, Thursday is very important, as we could be visiting major support or watching for a surge of dip buyers to drive the market back towards highs.
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- S&P 500 (SPY): 454.05 support.
- Russell 2000 (IWM): 234.54 support.
- Dow (DIA): 356.60 support area.
- Nasdaq (QQQ): 382.78 support.
- KRE (Regional Banks): 72.90 support area.
- SMH (Semiconductors): 287.37 support the 10-DMA.
- IYT (Transportation): Bounced off the 10-DMA at 275.38.
- IBB (Biotechnology): Needs to stay over 153.38.
- XRT (Retail): 100 minor support. 98.55 next support.
Assistant Director of Trading Research and Education