For as rough as day as the SPDR S&P 500 Trust (SPY) and iShares Russell 2000 ETF (IWM) had Tuesday, each losing between 0.8% and 0.9% on the day, it was the PowerShares QQQ Trust (QQQ) , which lost 1.8%, that really took the lead on the downside.
Many of the Nasdaq names momentum players have been hiding out in for months are now under their 50-day moving averages (MA). Names like Alphabet (GOOG) , Microsoft (MSFT) , MercadoLibre (MELI) , Skyworks Solutions (SWKS) , Applied Materials (AMAT) , Broadcom Limited (AVGO) , Lam Research (LRCX) and Marriott International (MAR) are all cracking their intermediate timeframe MAs. And these are just the names breaking (or already beneath) their 50-day moving averages. We won't bother addressing the ones breaking their steep 20-day MAs.
While we know trees don't grow to the sky, we're never quite sure when the branches are going to bend, or break altogether. Well, it appears a few of the branches on the Nasdaq's tree have begun to bend in a meaningful way. The more time the QQQ and E-Mini Nasdaq 100 Futures (Nq) spend beneath the 50-day MA, the greater the chances those bent branches will snap, and we'll finally undergo a much needed correction (hopefully via time and price) in tech land.
As far as the three equity futures contracts are concerned, only the Nq contract is currently beneath its short and intermediate timeframe MAs. The E-Mini S&P 500 futures (Es) is under its 8-day and 21-day exponential moving averages (EMA) for the first time since May 17, while the Mini Russell 2000 futures contract (Tf) is simply churning within a narrow range at the upper end of its multi-month price channel.
Daily Nasdaq 100 futures
Daily S&P 500 futures
Daily Russell 2000 futures
When it comes to the Nq contract, the big question is whether dip buyers will ride back in and treat the recent weakness as another buying opportunity. The fairly obvious rollover in the VanEck Vectors Semiconductor ETF (SMH) makes me think tech stocks, or at least the semis that have been on fire for the past few months, need a while to stabilize and form new bases. My baseline view for momentum players focused on the long side would be to step aside and allow the selling to run its course. Don't move back in until prices are back above the 50-day and 20-day MAs. Alternatively, keep an eye out for any steep declines toward our higher timeframe 200-day MA and year-to-date volume weighted average price (VWAP). Steep declines into higher timeframe MAs would be another area long term bulls would likely be stalking for buys.
My view of the Es is pretty simple. If you're a short term trader, trade around the 21-day EMA (or 20-day MA, it really doesn't matter all that much which one you follow), and don't spend much time picking bottoms until price is closing back above that EMA. Treat the 21-day EMA as your red-light and green-light pivot.
The Russell 2000 still looks like a mess with little in the way of a motivated participant leading the way. I'd avoid this contract and stick to the Nq and Es.
Moving on to Wednesday's Es auction, we'll enter the session with a focus on 2420.50. An open beneath 2420.50 that fails to hold above the opening print and developing VWAP likely comes under pressure, and auctions down toward 2414. Continued selling beneath 2414 has a relatively clear path toward 2400.75 to 2401.75.
5-min S&P 500 futures
An open above 2420.50 that holds above its opening print has the potential to auction back toward 2427 to 2428.50 before sellers re enter the pit. As long value remains beneath 2428.50 my inclination as a day timeframe scalper would be to look for reasons to fade strength.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my twitter feed @ByrneRWS