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Nasdaq Corrects and Forms an Outside Day

David Becker
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The broader markets finally took a respite on Tuesday as the overbought levels on all-three major indexes took its toll. The Nasdaq 100 ETF (QQQ) leading the market hit a new high on Tuesday. The overbought simply become even more overbought, until traders took profits. QQQ broke resistance in the 90-91 area and this area turns into the first support zone to watch on a throwback.

The QQQ made an outside day were the highs were greater than the prior day’s highs and the close was lower than the prior days close. This whipsaw price action should generate uncertainty and liquidation in the QQQ. Momentum on the qqq has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

Internet stocks were the best performers in a down market on Tuesday. Overall, FDN based in the 52-54 area and broke out with a move above 57 in late May. The FDN chart, the immediate trend is up with first support marked at 57. The mid May trend line and mid-June lows combine to mark support. The price relative to the S&P 500 ETF (FDN:SPY ratio) was turning up the last six weeks as FDN starts to outperform the broader market.

The Steel ETF (SLX) bouncing off support in the 45.5-46 area and challenging resistance in the 47.5-48 area. Overall, the ETF broke wedge resistance with a surge in late March and then formed a long triangle. SLX is showing resilience as it holds the rising 200-day moving average and bounces off the April-May lows. The ETF even broke the upper trend line of the triangle and this is the first sign that the bigger uptrend is continuing.

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