Deron Wagner | Aug 28, 2013 03:18AM ET
We have mentioned several times recently that the NASDAQ has been the lone holdout in the broad market, in terms of it being the only index holding above its 50-day moving average.
Even with yesterday’s sharp losses, the index is still above this important level of support (but now within 1% of it).
This is shown below on the daily chart of PowerShares QQQ Trust (QQQ), a popular ETF proxy for the Nasdaq 100 Index (which has a similar chart pattern to the NASDAQ Composite):
This triple convergence of price support could be significant enough to spark a bounce in the Nasdaq in the coming days, so keep a close eye on this level.
Conversely, the S&P 500 is now trading firmly below its 50-day moving average. As you can see on the chart of S&P 500 SPDR (SPY) below, the benchmark S&P 500 is technically in much worse shape than the NASDAQ:
For now, our market timing system remains in “neutral” mode. The only reason it has NOT yet shifted to “sell” mode is because the NASDAQ continues to hold above key, intermediate-term support of its 50-day moving average.
Nevertheless, if the NASDAQ joins the S&P 500 and Dow Jones Industrial Average in breaking down below its 50-day moving average as well, there would no longer be any reason to be on the long side of the market (with the exception of ETFs with low correlation to stock market direction).
Because we are trend traders, a shift to “sell” mode would also enable us to start selling short (stocks with relative weakness) and/or maintain a heavy cash position. All bets for individual stocks on the long side of the market would also be off.
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