If you just looked at the closing prices of SPY and QQQ, you would hardly notice that the markets were even open on Monday. Both indices closed relatively flat.
We saw some bullish signs and some bearish signs on Monday, which makes a lot of sense given that we are currently in a flat and choppy market.
The bullish update is that QQQ has now filled (mostly) its bullish retest gap below, which was created by last Thursday’s quite bullish opening. QQQ also closed with a bit of a lower wick, as did SPY. That is constructive price action.
QQQ Daily Chart
The bearish update is that much of the market closed lower. Broadly speaking, we really only saw semiconductors, cybersecurity, and energy names perform well on Monday. And even semiconductors were not exactly exploding higher. They just weren’t negative.
Big Tech was pretty much unanimously lower on Monday, with GOOGL looking like the worst of the bunch.
I have said it many times, but in order for a strong bull market to carry us into the end of the year, we need to see Big Tech and semiconductors once again resume their bullish trends.
Monday Heat Map
Until that happens, I think the best-case scenario is that we remain stuck in this chop. The worst-case scenario, at least for short-term bulls, is that we see a volatility event into September and October. For position traders, that could be the best case scenario.
The bullish setups are still there, and many are still viable. Perhaps the market has chopped long enough and frustrated enough bulls that it is finally time to move.
I know I have felt frustrated throughout August when some picture-perfect setups failed to follow through. But I also know that is the name of the game. The market will trend again, and for swing trading, a trending market is much easier to trade.
During periods of chop and consolidation, the key is to avoid giving back the gains from the prior bull run.
With everyone assuming we go lower in September, it is certainly possible that the next leg higher takes us to the gap fill at $730 that I have been targeting on QQQ. However, even that move would still be happening within the broader chop zone on QQQ.
Make sure that when the markets start moving again and are once again rewarding great set ups, you have some positions in names you like for the longer term, you have not given back all of your gains from the prior runs, and you still have the mental capital to be active, aware, and ready when the big moves come.
I have said it before, but I will keep saying it:
As long as the key support holds on SPY ($755) and QQQ ($700), I will remain bullish.
But if those levels break down, I am going to get pretty cautious, as the next major buy zone is quite a bit lower on QQQ.
Remember, the market can stay choppy and in consolidation mode just long enough to make traders get bored and quit. And that is often when the next move happens.
Thank you. Your insights are always very helpful.