Resistance Ahead, Bulls Firmly in Control
RLT Newsletter
Markets ripped higher on Monday, led by the big tech names that caught a serious bid. Apple was the only Magnificent Seven stock to finish lower, and it also happened to be one of the few names that held up well during July’s correction. That tells me money is continuing to rotate from the recent leaders into areas with more upside potential.
The SPY nearly tagged a new all-time high on Monday, and I think there’s a good chance we see one this week. If SPY is completing a running flat correction, which is what this chart is starting to look like, then we could have a very bullish move ahead.
A running flat occurs when the C wave fails to break below the A wave. It is a bullish pattern because it shows buyers were so eager to step in that they never allowed price to make a lower low before taking control again. These patterns often lead to strong impulsive rallies.
SPY Daily Chart
That said, buying SPY at these levels is not the ideal risk-reward setup. Fortunately, we’ve been discussing quality stocks sitting in quality buy zones for the past couple of weeks. While SPY never reached my preferred buy zone, QQQ and many of the leading technology names did. Even with SPY showing relative strength, I still believe the better opportunity has been, and continues to be, in QQQ and TQQQ.
QQQ bounced perfectly from its 100-day SMA and has now rallied for three straight sessions. On Monday it pushed into the Anchored VWAP around $701 along with the July 23 gap fill. This is the first meaningful resistance zone since the bounce off the 100-day SMA.
With SPY testing all-time highs and QQQ pushing into its first major resistance level, some consolidation during the middle of the week would be perfectly healthy. A pause here would simply allow the market to digest the recent gains before attempting another leg higher.
As I continue to say, as long as QQQ holds the 100-day SMA, I see no reason why we don’t keep pushing higher to my upper targets.
QQQ Daily Chart
There are still plenty of attractive opportunities, but chasing stocks like Amazon or Microsoft after their recent earnings rallies is not one of them. Amazon has now reached my initial target zone and is testing the upper trendline of the parallel channel that has contained price for years. If it can finally break above that trendline, a move toward $300 is certainly possible. Even so, the reward from current levels is becoming more limited, especially with the possibility that it eventually retraces to fill part of the recent earnings gap near the $260 support area.
Several stocks have produced explosive moves over the last few sessions, but many are now running directly into major resistance. QQQ, SPY, Google, Microsoft, and Amazon all fit that description. If these names can break through those levels and hold above them, that would be another strong confirmation that buyers remain firmly in control and would likely provide another opportunity to increase bullish exposure.
AMZN Daily Chart
One stock I continue to watch closely is IBM.
I’ve talked about IBM for weeks, including the trade back in mid-June when it printed four consecutive hammer candles before launching higher. Since then, the stock has been hammered on earnings and has fallen all the way back to its 200-week SMA and prior all time high, which has acted as excellent support.
IBM is now approaching a resistance zone. A breakout above $227 would put price back above the massive earnings volume candle and could open the door for a move into the $240 to $260 resistance region.
If it fails to break out and instead pulls back toward the 200-week SMA, that would set up the potential for a very attractive double bottom. The risk is well defined because a close below the 200-week SMA would invalidate the bullish thesis. Until then, I think IBM remains one of the more interesting charts to watch.
IBM Daily Chart
Check out the latest market update from Jerremy Newsome, created exclusively for our newsletter. He covers the stocks he's watching, breaks down the key charts, and shares his outlook on where the market could be headed next.