SPY, QQQ and IWM Affirm Resistance with Downturns
The Nasdaq 100 ETF (QQQ) broke support with a sharp decline and broken support turned into resistance over the last few days. After hitting resistance last Thursday, the ETF turned lower on Friday. Even though Friday's decline was modest, a clear reaction high formed with resistance in the 58.35 area. Also notice that RSI hit resistance just below 65, which marks downtrend resistance for this indicator. The current short-term downtrend is clearly confirmed with these two failures. More importantly, traders now have clear resistance levels upon which to base a trend reversal. A move above 58.40 in QQQ and 65 in RSI would be short-term bullish.
SPY also turned lower on Friday to affirm resistance. Overall, the ETF remains within a falling wedge or channel. This pattern looks like a falling flag or small wedge on the daily chart. Falling flags are bullish consolidations. However, the short-term trend is down as long as the flag falls. A breakout is needed to end the consolidation and resume the uptrend on the daily chart. The lower high at 135 keeps the downtrend in place. At this point, I am inclined to mark a resistance zone around 135-135.50. A move above this level would break the upper trendline and the resistance zone. RSI also met resistance at 65 last week and this is the level to watch for momentum.
IWM completes the trio of downtrends as the ETF formed a lower high around 85.5 and a lower low at 81.5 this month. Another lower high looks set to take shape with the current bounce to 84 and downturn on Friday. RSI also failed at 65 to confirm resistance. Look for IWM to break 84 and RSI to break 65 for a complete trend reversal.
Key Economic Reports/Events:
Tue - May 24 10:00 New Home Sales
Wed - May 25 07:00 MBA Mortgage Index
Wed - May 25 08:30 Durable Orders
Wed - May 25 10:30 Crude Inventories
Thu - May 26 08:30 GDP - Second Estimate
Thu - May 26 08:30 Initial Claims
Fri - May 27 08:30 Personal Income & Spending
Fri - May 27 09:55 Michigan Sentiment
Fri - May 27 10:00 Pending Home Sales
Charts of Interest: Tuesday and Thursday in separate post.
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This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
