Healthy Dip
RLT Newsletter 7.10.26
Yesterday I reviewed the historical performance of candles that looked similar to Tuesday’s massive wick. There aren’t many examples because it is such an unusual candle. After studying them, the biggest takeaway was that a gap down on Wednesday was the most likely scenario, but it was essential that buyers step in aggressively and produce a bullish candle. If they failed to do so, the odds of a meaningful selloff would increase dramatically.
For the first hour of trading Wednesday, the bulls did exactly what they needed to do. However, as soon as SPY pushed back into Tuesday’s closing price and filled the morning gap, it got rejected. From there, sellers controlled the rest of the session with persistent selling right into the close.
I never fully trusted Tuesday’s wick when it formed. It felt more like short covering than genuine accumulation, and I wanted to see follow-through from buyers before putting more confidence in it. Instead, Wednesday delivered the opposite. Selling intensified throughout the session and we closed near the low of Tuesday’s wick.
That low remains a critical support level, and both SPY and QQQ are getting dangerously close to breaking it.
SPY Daily Chart
If we close below Tuesday’s monster wick this week, I think we see a meaningful flush lower that brings both indices back toward their 100-day SMAs. The reason I want to see a close below that level rather than just an intraday break is because I will be watching closely for another bear trap. QQQ still has not filled its gap from May 6th, and that area remains a significant support zone where buyers could emerge.
If we trade below Tuesday’s wick intraday and then recover to close back above it, that is actually constructive for the bulls. A trapping wick below the major wick would flush out liquidity, trap late shorts, and potentially create the conditions for a stronger bounce. This is especially true as many key tech names are right on or very close to key supports, but more on that later.
QQQ Daily Chart
As I said at the beginning of this month, before any of this volatility started, my plan was to do less, hold more cash, and only deploy capital into setups with high probability and very attractive risk/reward where risk can be managed tightly. Making money when markets are trending is relatively easy. The real challenge is protecting those gains when conditions turn volatile and choppy. Hopefully that cautious stance has helped some of you navigate this drop with a little more patience.
At this point we have seen a long string of bearish candles, and many of the largest technology names have pulled back significantly from their highs.
Trillion Dollar Titans at or Near Support
NVDA -- Down roughly 15% from its high and approaching the 100-day SMA. I want to see a retest of both the 100-day and the $194 level, which has shifted from prior resistance to new support. If that sets up, I will look to get short-term bullish again.
AAPL -- Sitting directly on a major confluence: prior all-time high, the high of the earnings candle, and the anchored VWAP from the massive April hammer. A short-term bounce makes sense here. If buyers fail to show up, another 3 to 6% lower could happen fairly quickly.
GOOGL -- Right on support and has finally filled its post-earnings gap. There is substantial support throughout this area, but if it breaks down, the next zone I will be watching closely is near the 100-day SMA.
AMZN -- Approaching the primary support area I have been monitoring, trading near both its 100-day and 200-day SMAs. If it drops into the $236 to $233 zone, the risk/reward becomes very attractive. A close below the 200-day would have me either hedging or stopping out entirely.
AVGO -- Also nearing a major confluence of the 100-day, 200-day, and prior resistance that should now act as support. If it reaches the 200-day, the stock will be down roughly 27% in just over a week. At that point I would expect some kind of bounce, even if it proves short-lived. I do not want to see a close below the 200-day.
MSFT -- Approaching its 200-week SMA after eight consecutive bearish sessions. Still in a clear downtrend, but a bounce near the 200-week and the major gap-fill area would make a lot of sense technically.
With many of the largest companies in the world sitting at or very near key support, there is certainly a case that the market finds its footing here. But if these levels begin to fail and the broader market closes decisively below Tuesday’s wick, there is also a path where prices move substantially lower and likely in swift fashion.
Stay patient and remember that as traders, our job is to mitigate risk to the downside, especially during periods where an edge is not evident.