In the last two weeks we rallied over 10% off the lows straight into resistance ( see our posts earlier this week Don’t Get Complacent, Resistance is Futile) where we urged our readers to go short at resistance (the first test of resistance short on extended move is a bread and butter HCPG type short strategy). Not surprisingly we reversed at resistance but today hit support. Now what?
Look at where we gapped down to this morning — exactly at support:
$QQQ reversed at 50SMA and gapped down this morning right at gap fill. We came in with the plan of buying an intraday reversal off of 53.3 but backed away once we got the gap down on the horrendous job report. We like buying sharp intraday reversals with stops on low — gap downs to our levels usually get us on the sidelines.
$SPY filled gap — and 20SMA right below. Do or die territory.
$IWM filled gap and opened on 20SMA, again do or die territory.
The leader of the bounce has been the Nasdaq — let’s review
1. Rallied off the bottom all the way back to 50SMA. Check.
2. Reversed exactly off 50SMA. Check.
3. Held gap fill area at 53.3. Check.
Now what? There’s some further support near 53 (20SMA and short-term trend-line from bottom) but that’s about it — through there and we probably revisit the lows. And if we rally, we have the 50, 100, and 200SMA walls right above. The lines in the sand could not be more clear.