MARKET GAUGE- Market In Correction
OVERVIEW: Indices finally got their overdue bounce on Friday in what was a see-saw session however, we should not draw to many conclusions from Fridays action. Although it was good to see markets stabilize, many times traders are hesitant to go into a weekend short after such a precipitous decline, so it will be interesting to see if we get any follow buying on Monday when trading resumes. Traders should continue to honor what should already be tightened stops on existing long positions that are still working and continue to raise cash waiting for only the best opportunities. Traders should also be paying close attention to those stocks and industries groups that are acting relatively better than the others during times of turmoil. Stocks and sectors that had been strong leaders during the last bull move may not be the leaders of the next confirmed rally. My advice would be to turn off the TV and shut out all of the opinions and market analysis floating around and watch what individual stocks and the indices are telling you. Markets may continue to new highs after what appears to be a sharp correction, but are not obligated to do so. Many of the hard earned gains in the indices have melted away, in fact, the Russell 2000 is now virtually flat for the year after being up over 13% in August. Now let’s take our weekly look at the charts, where due to being in official correction territory, all distribution days are wiped away and we now are on watch for a new confirmed rally like the one we saw back in April that led to a nearly six month bull trend higher.
SPY- After knifing thru the 200 day EMA on Thursday the ETF was able to reclaim the level with a 1.39% rally on Friday. We will be watching the summer breakout area near $280 to provide some potential resistance on any move higher. Traders should be prepared for excessive volatility like we saw back in the February-April period after markets corrected.
NASDAQ- The Nasdaq Composite was able to pull off the same trick Friday with a 2.29% rally. The index was able to attract some buyers as it cut thru the May 2018 consolidation area that proceeded a breakout that led to all-time highs. We will be watching this area for further support on subsequent declines.
QQQ- Its pretty much the same look for the Nasdaq 100 with possible support near the prior breakout area near $170. The index was the best performer on Friday jumping 2.78% closing well above the 200 day EMA.
IWM- The small caps continue to be the worst performer of the group as the index is now flat for the year after having been up over 13% in late August after reaching all-time highs. We have to go back to the November 2017 breakout area near $150 to find the next line of meaningful support. The index is now nearly 5% below its 200 day EMA. We had been warning here of the excessive build up in distribution days in the index well before the large decline.
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