On July 5th, Mish wrote an article called “Sell in July and Go Away? Calendar Range Reset”.
In that article, she noted, “should IWM fail to clear the calendar range high and worse, break down under a new 6-month calendar range low[…] it would be hard to think NASDAQ can sustain current levels.”
July 19th so far, marks the top of the market.
Yesterday, we featured the retail sector through the ETF XRT. This sector represents the major shopping habits of Americans, or 68% of the GDP. One could argue that, despite the headwinds, the consumer is holding up.
One could also argue that, while true, for how long can that really go on?
In asking those questions, we also examined the charts. Our conclusion? XRT, while significantly underperforming the benchmark, has yet to convincingly break down, or breakout for that matter.
The small-caps through the ETF IWM are performing better than XRT. However, while IWM is well below the July 6-month calendar range high, it remains well above the calendar range low at 180.72. In other words, we are still in correction mode rather than bear market mode.
Retail can sour the markets more, of course. And growth, which has outperformed value, exemplifies the weaker retail sector, yet stronger tech sector. Nonetheless, today we turn our attention to Nasdaq to see if this has indeed seen the best of the rally and is poised for lower levels.
With Tesla, Nvidia and Apple all down between 2-4% in today’s session, QQQs are approaching a huge support area. The QQQ chart right now has a few key aspects based on our MarketGauge proprietary indicators.
- The Phase: Bullish, as the 50-DMA (blue) is above the 200-DMA (green) while the price trades above both MAs.
- Fast MA: With today’s action, QQQs are holding the MA (pink). Interesting that the fast MA is in alignment with the 50-DMA.
- Calendar Ranges: QQQ could not clear above the July 6-month calendar range high (horizontal green line). However, it is well above the July 6-month calendar range low (red line).
- Real Motion: QQQs momentum is weakening and shows a bearish divergence sitting under the 50-DMA, while price remains above its 50-DMA
- Leadership: QQQ has outperformed the SPY since late August, although it is failing the dotted Bollinger Band.
Put this all together and we have solid reasons why growth is supreme over value. We also have some palpable resistance at the July 6-month calendar range highs that, until it clears, means with the weaker momentum, there is the possibility QQQs could test the July calendar range low.
The best we can say now is this is a technical correction.
It certainly could turn into more downside, especially if the retail and small caps fall much further. Likewise, if this is merely a correction, then we ought to see a better bounce from current levels very soon. But, until either scenario plays out, QQQs are rangebound.
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September 7: Singapore Breakfast Radio, 89.3 FM & Wolf Financial Twitter Spaces & CNBC Asia
September 12: BNN Bloomberg & Charting Forward, StockCharts TV
September 13: Investing with IBD podcast
October 29-31: The Money Show
- S&P 500 (SPY): 440 support, 458 resistance.
- Russell 2000 (IWM): 185 pivotal, 190 has to clear.
- Dow (DIA): 347 pivotal.
- Nasdaq (QQQ): 363 support, over 375 looks better.
- Regional banks (KRE): Another modern family member struggling here under 44.
- Semiconductors (SMH): 150-161 range to watch.
- Transportation (IYT): Broke the calendar range low along with XRT; not so healthy.
- Biotechnology (IBB): Compression between 124-130.
- Retail (XRT): 62.90 the July calendar range low broke down, along with IYT — 2 negative signs.
Director of Trading Research and Education