Besides the Russell 2000 (IWM), the Nasdaq 100 (QQQ), S&P 500 (SPY) and the Dow Jones (DIA) have closed over Friday's high, creating a decent reversal. This has placed the four major indices in an interesting spot, as they were showing technical weakness before news surfaced about the new South African variant.
Though Monday's resilience is impressive, the pullback from highs has taken the largest toll on the small-cap index; thus, IWM is still underneath its 200-day moving average, confirming a distribution phase. While IWM is looking weak, it does have major support from its general trading range scaling back through 2021. Nonetheless, we should not only be cautious of IWM's weakness, but also for the other key indices.
So far, the strongest index is the tech-heavy Nasdaq 100 (QQQ), which tested an important resistance area Monday. If QQQ is unable to clear and hold over $400.99, it will resemble a head-and-shoulders chart pattern, pointing towards more weakness and potential downside. Though it seems unlikely the QQQ will break down, we should stay focused on the tech-heavy index, as it has been one of the strongest leading indices through the pandemic. If QQQ were to pull off and show further weakness, that could be a very bearish sign.
When it comes to the DIA, it has two main levels to clear and holdover. One is the 50-DMA at $352.10 and the other from the gap at $355.34. On the other hand, the SPY needs to clear and hold over $470, where it faced most of its resistance from the past 3 trading weeks.
Therefore, watch QQQ to signal more strength to the upside, but keep an eye on the SPY, IWM and DIA, for they have more resistance ahead that can ultimately drag down the market if they are unable to regain momentum.
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ETF Summary
- S&P 500 (SPY): 470 main overhead resistance.
- Russell 2000 (IWM): Confirmed distribution phase with second close under the 200-DMA.
- Dow (DIA): 352 resistance from 50-DMA.
- Nasdaq (QQQ): Watching to close over 400.99.
- KRE (Regional Banks): 71.17 support the 50-DMA.
- SMH (Semiconductors): 314 next resistance area.
- IYT (Transportation): 273.72 gap to fill.
- IBB (Biotechnology): Like to see this hold over the 10-DMA at 154.06.
- XRT (Retail): 95.94 support area.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
