MARKET GAUGE: Confirmed Uptrend
OVERVIEW: After coming under fire last week, the S&P 500 and Nasdaq Composite were able to hold serve at key support levels and keep the four month rally that started back in April alive, but the Small Caps are beginning to look the victim to a market rotation. With the earnings season winding down, we may be in store for a typical sleepy mid to late August, but these are hardly typical times and geopolitical headlines could hit at any time, so traders need to stay alert and prepared. Let’s take our weekly look at the four indices we cover here and see where we stand heading into next week.
SPY- After finally breaking out above formidable resistance near the $280 level last week, the index endured a test of that breakout area early this week. Price bounced off this level on Thursday eventually finishing near the high of the day, and a positive open along with a strong finish to Friday afternoons session provided some follow thru. The distribution picture here has been improving for a couple weeks, but should the index continue its advance, a rather large obstacle sits ahead at the old all-time highs near $286.63. The current rotation out of the small cap area, should it continue, may provide the catalyst to push the index to new highs, but plenty of work is still to be done. The ETF now sits with only three distribution days in the current count.
NASDAQ- After testing trilateral support early in the week, the Nasdaq Composite righted the ship with four straight positive sessions. Last week we mentioned that the old March high near 7640 was an important area for the index to hold, and this area was fortified by moving average and four month trend line support. Traders soaked this scenario up on Thursday with a beautiful trend day pushing price back into the four month uptrend channel. The next test lies near the old high at 7933. The index sits with a manageable five distribution days over the last 25 sessions, but any additional days tallied next week would taint the current bullish outlook.
QQQ- Not much to add here as the Nasdaq 100 is a carbon copy of the Composite. The old highs near 183 await any further rally. The index also sits with five distribution days in the current count.
IWM- The Russell 2000 has not answered the bell with the other indices. The index crashed thru its fourth month trend line last Friday and has been unable to remount it since. Although it has reclaimed the 50 day EMA, the index racked up another distribution day on Friday while the others indices advanced. The index seems to be adding distribution days as quickly as it has ben dropping them lately. We now sit with six such days within the last 19 sessions leaving us still cautious in regards to the small caps even though the index still sits within striking distance of the old highs. On any near term advance, we will be watching to see if it can reclaim its trend line, or if the index is turned back here.
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