Technical Correction Or Return Of The Bear Market?

On July 5th, Mish wrote an article called Sell in July and Go Away? Calendar Range Reset.

One quote from the article,

“.should IWM fail to clear the calendar range high and worse, break down under a new 6-month calendar range low, then it would be hard to think NASDAQ sustains 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.

And one could also argue that while true, for how long can that go on?

In asking those questions, we also examined the charts.

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.

  1. The Phase-Bullish as the 50 DMA is above (blue) the 200-DMA (green) while the price trades above both MAs
  2. Fast MA - with today’s action, QQQs is 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).
  3. Real Motion - QQQs momentum is weakening and shows a bearish divergence sitting under the 50-DMA while price remains above its 50-DMA
  4. 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 clears, means with the weaker momentum, 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.

Until either scenario plays out, QQQs are rangebound.

ETF Summary

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 and 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

More By This Author:

It’s Really All About the Retail Sector Now
Reasons To Get Excited About The Market
Bonds, Secular Bear Market: Impact on Small Caps

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