For the past two weeks, the market has been trending lower. With certain sectors sitting in oversold territory, we could be ready for a pop-up in price. However, this is a tricky spot, since a rally would be right into a resistance area.

As seen in the above chart, two of the major indices are near resistance from the 50-Day moving average (blue line), while other two have resistance from the 200-DMA (green line). With that said, if these major moving averages are cleared, we could see a quick turnaround not only in the indices but for some of the oversold sectors, such as regional banking (KRE), transportation (IYT) and semiconductors (SMH).

Currently, KRE is the weakest as it needs to get back over resistance from a prior low at $66.85. On the other hand, IYT is currently holding minor support from $245.34, while SMH is over major support from $237.

From a momentum standpoint, notice how all three held their lower band on our Real Motion indicator. This can be seen with the red dotted line holding over the blue dotted line. This is another sign that we could get another pop in price, as momentum has not fully broken down.

So where is the trap?

While these could be great short-term reversal plays, we need to watch out for a quick move over resistance followed by a surge of selling. Because the market picture still looks heavy with increasing inflation and pending issues with the Ukraine war, we need to be careful that the market doesn't suck people in before moving lower. Therefore, watch how the indices behave once they clear the 50-DMA. If the volume in the indices is low on a move higher, be very cautious.

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ETF Summary

• S&P 500 (SPY): 441 needs to hold.
• Russell 2000 (IWM): 201 to clear.
• Dow (DIA) 343 pivotal.
• Nasdaq (QQQ): 348 to clear.
• KRE (Regional Banks): 66.85 to clear.
• SMH (Semiconductors): 237 support.
• IYT (Transportation): Watch to stay over 243.
• IBB (Biotechnology): 128 support.
• XRT (Retail): Needs to clear 77.22.

Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education