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Major Indices Turn Bearish; Can Support Hold?

David Becker
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Major Indices Turn Bearish; Can Support Hold?

The Russell 2000 iShares (IWM) peaked in early July and fell the last five weeks. The S&P 500 SPDR (SPY) held out, but succumbed to selling pressure in late July and broke first support. The Nasdaq 100 ETF (QQQ) remains the lone hold out among the major index ETFs. The QQQ shows that it down in late July and testing support in the 94 area over the last five days. A break would put QQQ in with the rest of the break down and this would be quite negative for the stock market overall.

The Commodity Channel Index (CCI) is turning bearish with a move below -50 in late July. The horizontal lines and yellow mark a zone from -50 to +50. In general, a break above +50 is bullish for momentum, while a break below -50 is bearish. As the chart now stands, QQQ remains in a short-term downtrend and in corrective mode as long as CCI remains below +50. Look for a surge above this level to turn momentum bullish again. The Nasdaq 100 Equal-Weight ETF (QQEW) with similar characteristics.

The Networking iShares (IGN) and the Semiconductor SPDR (XSD) both broke short-term support levels and these breaks are holding. Even though the long-term trends are still up, a correction remains in force as long as these breaks hold. The XSD is breaking support with a sharp decline in late July. This support break is short-term bearish and it is holding. With the decline to 70, the ETF retraced 62% of the prior advance and this Fibonacci retracement level could foreshadow a reversal area. However there has not been an upside catalyst that would suggest the correction is ending. First resistance for XSD is marked at 72 and a breakout here would be short-term bullish.

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