SPY and QQQ Are Still Stuck in the Chop
Tuesday and Wednesday brought some slight bullishness to the market, with SPY and QQQ now pushing toward the top of Friday’s candle. QQQ has reclaimed the 100-day SMA but is still below Friday’s high and has retested the broken trendline from below. This market is still very much in the chop zone.
If we pull up the SPY chart, the current price action looks extremely similar to the last chop zone we entered last fall. We can see the two big bearish candles that ended the euphoric, one-way uptrend and kicked off a much choppier, more challenging market (red arrow). From there, SPY pushed higher into new all-time highs before dropping to the 100-day SMA. That was followed by two more higher lows that stopped just short of the 100-day SMA, with each push barely managing to make another all-time high.
SPY Daily Chart
I think we are either at the blue arrow or the purple arrow on the chart now. If we are at the blue arrow, SPY could push higher one more time while QQQ puts in a lower high, followed by another rotation lower across many of the names that have been holding up well. Or, we are already at the purple arrow and will break the 100-day SMA on SPY, pushing down toward AVWAP near $738 or possibly even the 200-day SMA. If this correction has more downside, I don’t expect it to get much steeper than that under my primary market thesis.
QQQ Daily Chart
One More Flush in Semis?
One reason I think we could see another push lower is that SOXX and many of the semiconductor and AI names look like they need one final move into key support before finding a durable bottom and pushing higher into year-end. INTC and MU are two great examples of charts that are clean and relatively straightforward. SOXX itself also looks like it needs one more small flush lower. That would make the current consolidation a bear flag, followed by another low into the 200-day SMA sometime next week or possibly the week after.
Keep in mind, I see that as the end of a larger correction, not the start of a new downtrend. My target for SOXX on the next major move higher is $776, roughly 65% above the 200-day SMA. However, if SOXX breaks below the 200-day SMA decisively, it enters no-man’s-land, with very little historical support to lean on. At that point, who knows where it could finally find a bottom.
SOXX Daily Chart
Earnings will dictate whether the low is already in or if we have another leg lower to go. LRCX, a decent size name in the AI space, is gapping down roughly 5% as I write this. It has a similar look to INTC and SOXX, suggesting it could be in the final fifth wave of its C wave lower. Unlike MU and INTC, though, LRCX is already below its 200-day SMA, so it doesn’t have that key moving average to act as support on another drop. There is a gap at $225 that could provide solid support if the selling continues.
LRCX Daily Chart
Staying Patient
META reported earnings and bounced nicely on the report, but the market as a whole has hardly moved. With SPY and QQQ still trading inside Friday’s candle, I don’t see much of an edge without a gap in either direction. There simply isn’t much new data to work with until price gives us a clearer signal.
Since I see several charts that could use one more push lower, I’m still holding cash so I can buy that drop if it comes. At the same time, I’ve been buying small positions into key support levels on names like NVDA, AMD, SIMO, MU, SNDK, PANW, and NET, along with the ETFs I like to trade: SOXX, XLK, TQQQ, and QQQ. I don’t want to be sitting completely on the sidelines if that final flush never shows up.
PANW Daily Chart
Always Mitigate Risk
Of course, when I talk about a final flush, I’m hoping it’s just a nice push down into the 200-day SMA on SOXX and many of the semiconductor names before they find support and start moving higher into year-end. But I also need to be prepared if that doesn’t happen.
For risk management purposes, I want a plan in place in case we end up in a 2018-style scenario where the bottom falls out and the market continues selling off into year-end. That’s not my primary expectation right now, and I’m not seeing signals pointing decisively in that direction. Still, it’s a scenario I keep in mind when formulating my risk mitigation plan for every trade I take.
For now, I’m staying patient, keeping some cash available, and adding small positions where the charts offer good support. If we get that final flush, I’ll be ready to take advantage of it. If the market turns higher without giving me that opportunity, I already have some exposure. And if things get worse, I know what key levels will act as my hedge triggers.