OVERVIEW: Despite the rough end to the week, the major indices continue to be in a confirmed uptrend. The possibility exists that we are seeing some sector rotation, or at worst the beginnings of some defensive posturing. Whatever the case, we will continue to monitor the markets on a day to day, and week to week basis for clues as to where we may be heading rather than taking a wild stab at what may lie ahead. Fridays action again shows why it is important to monitor distribution in the indices. Trimming some positions and raising a bit of cash should have protected members accounts, and some protection offered by our IWM puts limited the damage further. Let’s take a detailed look at where we stand heading into Monday.
SPY- After breaking thru the $280 level convincingly mid-week, Fridays selling took the index right back down to that breakout level, before bouncing a bit and closing at $281.42. We chalked up a distribution day in the process giving us a total of five, however, the 6/25 day will come off the count after Mondays close, so things still look fair for the index in this regard. We are still well above trend as well as the 50 day EMA, but a close back below the $280 level will be a bit of a set back. Let’s see if the bulls step up their game early next week. The index may need some more time to consolidate before taking on the old highs near $286.
NASDAQ- The Nasdaq did break back below the 7800 level where is staged a mini breakout earlier this month, however, I don’t feel this is the most important line of support. I will be watching just a bit further down to roughly the 7640-7660 area where the real support may lie in confluence with trend and the 50 day EMA. This area also aligns with horizontal support/resistance that dates back to March of this year. Although still in a confirmed uptrend, the recent barrage of distribution days has me on guard, at least in the short term.
QQQ- The Nasdaq 100 is also nearing merging areas of support. The four month up trending channel aligns roughly with the 50 day EMA as well as the magical $175 level. The index, which currently sits with six distribution days, will also lose a day due to time after the close Monday. However, the weekly chart looks a bit more ominous as it shows distribution four of the last six weeks with little upside volume to complement. Here is a look at both time frames.
IWM- Relative strength has been waning for our former star of the show. Eight days of distribution over the last 25 sessions proved too much for the index to overcome as it shed near 2% in Fridays session. The four month trend line was broken, but the decline did stop right on the 50 day EMA. I would be watching to see just how strong any bounce here is, should we get one early next week. If the 50 day EMA doesn’t hold, a move down to the prior breakout area near $160 is in the cards.
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