Markets remain in a tricky situation. The strongest market currently, the Nasdaq, is the one that we are watching. If the QQQ ETF breaks $250, it’s our triple kill zone where;
- it breaks the uptrend that started since April,
- breaks the low printed a few days back, and
- breaks the 20-day moving average.
The chart shows all 3 lines quite clearly. We are also getting divergence on the 14 day RSI.
The 20-day simple moving average has clearly been tested 6 times. If the market holds here, we will probably even go and test new highs on the S&P 500. A break of that 20-day though, which we could say is below $250, would likely bring out the sellers in the Nasdaq.
Sentiment in the Nasdaq still remains extremely high, showing growing signs of complacency. Sentiment is at 84% bulls, and on top of that we have the average sentiment of the last 20 days at a sky-high 85%. The put-call ratio is showing growing signs of complacency too. Traders are buying more calls per put than back in January of this year.
The Nasdaq begins its seasonal weakness from today (the week after monthly expiration). The next 2 months have a statistically weak return for the Nasdaq.
The Nasdaq is where all the money has been hiding out and a drop in the Nasdaq will put pressure on margins forcing some other uncorrelated assets into a selloff.
So basically, let’s watch the 20-day SMA and if that goes tighten up stops, or just decrease exposure to the markets.
Side note: Microsoft (MSFT) might be the canary in the coal mine here. It’s broken its trendline… is this an early warning?
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