QQQs enter downtrend
TLDR:
QQQs closes below the 10d with negative MACD
Good time to sell calls against longs to provide downside risk
With SPY and DIA still in uptrend, closely watching Nasdaq to see if it is canary in coalmine or just undergoing some digestion
PPI and jobless claims numbers will move markets this morning
The milder inflation numbers briefly caused the market to pop, but we quickly gave back those gains and the QQQs had their second negative day in a row and closed in a downtrend. This could be consolidation of recent gains or it could be the canary in a coal-mine and suggest that the market will correct and test some support levels below.
QQQ
The QQQs had their lowest close in 9 days and settle below the 10d for the second day in a row which caused MACD to go negative as you can see in the bottom section of the chart.
We will review the other indices below, but generally the other major indexes are still in uptrend. With the QQQs showing some relative weakness, we need to watch closely to see if this is just some digestion or suggests some broader weakness is coming. Sideways action or some digestion of recent moves is certainly normal but it gives us a good opportunity to sell some calls against our longs and reduce risk while we wait on the next uptrend in Nasdaq stocks.
I noted a couple of support areas to watch.. There is a gap to fill at $308ish and I think there is also support at $305ish.. May not get there, but an almost 3% move down would not be unheard of — may not get there, but those are the levels to watch.
Regardless, I think the best approach is to sell front month calls against longs up above the 10d until the QQQs get back in uptrend.
SPY
The SPY tested the 10d and closed above - still in uptrend. However, we have MACD flattening so will need to see if the SPY follows the Nasdaq and turns a bit more negative. Today’s closing prices will be key. Given weakness in the QQQs, a more conservative approach would be to go ahead and sell calls against longs above recent highs and let price play out.
DIA
The Dow looks the strongest on a relative basis.. still in uptrend and still above the recent bull flag it put in. The Dow might be acting as a bit of a safe haven while we get some consolidation.
IWM
The Russell had a bearish engulfing candle yesterday which is super ugly, but is not yet in a downtrend. It did close below the 10d (barely) but still has a positive MACD - so officially entered “no trend” but has definitely been sloppy the last few days. It is really not doing anything wrong - simply trading sideways.. Needs to see above $180 and show some price strength — or below $172.50ish (recent lows) to get out of this range.. Otherwise, just treading water..
Let’s see how these PPI numbers and jobless claims move the market.. if they pop and we hold the gains that would be nice. I think if they move futures negative and/or we give back the gains then we could have further consolidation next week before we get another leg up..
