STOCK INDEX ETFS ARE STILL HOLDING ABOVE SUPPORT LEVELS AND ARE OVERSOLD -- WATCHING THE QQQQ FOR SIGNS OF A BOTTOM

STOCK INDEX ETFS STILL HOLDING ABOVE SUPPORTS... The three stock index ETFs shown below are in short-term oversold conditions. In addition, all three are still above important support levels which I'm defining as their September/October peaks. As long as those supports hold, there's room for another rally attempt. The Dow Diamonds (DIA) in Chart 1 are trading above their early September peak at 102.92 (see circle). The 9-day RSI is in oversold territory near 30. Chart 2 shows the S&P 500 SPDRS staying over the early October peak at 114.34. The RSI line is showing some "positive divergence" (see arrows). The most critical of the three is the Nasdaq 100 Shares (QQQQ). That's because the QQQQ has already declined to its October highs (36.37 to 36.47) and its 200-day moving average (36.10). In addition, its RSI line is in the most oversold territory (under 30) since last August when it began its fourth quarter advance (see circles). All of which suggests to me that the market has reached a level where a rebound could be attempted. For that to happen, however, the market has to show more convincing gains on rising volume. The indexes will also have to climb back over their 50-averages to improve their short-term trend. The first hurdle for the QQQQ will be its 20-day line.

Chart 1

Chart 2

Chart 3

20-DAY AVERAGE IS FIRST HURDLE... I wrote recently that the 20-day average is usually the first one to be broken when a market is changing direction. It was the first one broken at the start of the January as the Nasdaq 100 was peaking (see circle). And, as the next chart shows, the (dashed) 20-day line is closer to the QQQQ than the (red) 50-day line. Right now, the 20-day line is still a full point over the price action. So no upside crossing is imminent. But it's dropping fast. A few more days of stable price action would bring it within striking distance. When looking for early signs of a possible bottom, an hourly bar chart can also be helpful.

Chart 4

HOURLY BARS SHOW FIRST CHART HURLDES... The hourly bars show the January downtrend in the QQQQ in more detail. It shows two hurdles the QQQQ will have to overcome in any rally attempt. One is the down trendline. The other is the gap area (see box) from 37.81 to 38.06 (see box). Normally, an overhead gap is a potential resistance barrier. The QQQQ will have to get above 38.06 to clear the gap area. And it will have to break the down trendline. Until both of those things happen, don't expect too much on the upside. On a more encouraging note, the hourly RSI and MACD lines are showing some upward momentum. The green volume bars also show some quiet accumulation (buying) going on at current levels.

Chart 5