On Monday, QQQ gapped below the 100-day SMA, never a good sign. However, I mentioned at the time that it was still holding its main support at $701.59, and that until that broke there was a path higher in the immediate future. The rate hike and the Warsh speech drove QQQ down so that it could finally fill the gap left from the August 4th bullish retest gap.
The last FOMC meeting took place on July 29th, which gave us a bear candle breaking the 100-day SMA on close, a pretty gnarly candle, and then the next day gapped higher and ran. That all sounds pretty familiar if you ask me.
The prior 3 FOMC meetings had bearish reactions on the day of and reversed the next day with bullish gap and go moves. The market continued higher after the April and July meetings, while the move higher in June turned out to be a bull trap before a quick and significant sell off. The question now is which one is happening this time.
QQQ Daily Chart
I’m still leaning bullish because we’ve held the key support I’ve had on my chart for the last month. That support was the $701 gap fill and the 100-day SMA on SPY. My view hasn’t changed, and I think the gap above at $730 is the major target for QQQ, with a new ATH as the major target for SPY.
If QQQ starts to break back below the 100-day SMA again, that would be concerning, especially since the gap below has already filled, and I’ll hedge and get cautious if that happens. Especially since history says a 7%+ correction could be coming in the next 60 days now that we’ve started a new rate hike regime. Even with that knowledge, I don’t think it’s out of the question for a push higher to suck in all the bullish traders once again, only to get trapped into new highs before a sell off into October.
While this market is choppy and not the easy trending market we saw in April and May, there are obvious levels in play, and so far SPY and QQQ have not violated them.
SPY Daily Chart
AI and Semis Leading the Way
When we look at what drove the push higher, a lot of it was AI names and semiconductors. That’s why QQQ performed much better than SPY, RSP, DIA and IWM. NVDA hit my main target as it filled its first gap, and now its second overhead gap is Target 2.
Another one I have my eye on is AMAT. This stock has taken an absolute beating over the last couple of months and is back into the 200-day SMA after a 45% sell off. When it first touched the 100-day SMA, it got a decent bounce of about 20% higher. After 4 candles in a row this week holding the 200-day SMA, a 10% to 15% move higher to fill the gap and push into the prior pivot, and possibly even the 100-day SMA, seems pretty reasonable.
This could be played by buying off the 200-day SMA, with a stop being a close below the 200-day SMA and failing to regain the moving average the next day. Or the play with more confirmation, would be to wait until it breaks above the $433 level, with a stop below the 200-day SMA. If it really starts to fail the 200-day SMA the unfilled gap at $355 becomes the next big downside target.
AMAT Daily Chart
