• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Remember, Overbought and Extended Aren't the Same as Bearish and Broken Down

There is not sufficient technical evidence to assert that Wednesday's decline in stocks was the beginning of a severe decline.
By BOB BYRNE Aug 18, 2022 | 08:30 AM EDT
Stocks quotes in this article: SPY, QQQ, IWM, XBI

Many of us have been looking for a stock dip, and we finally saw that on Wednesday. With nearly 80% of the S&P 500 closing in the red and 68% of total Nasdaq volume coming in declining issues, it's fair to say that the bears controlled yesterday's narrative. But if we only look at the SPDR S&P 500 ETF (SPY) , Invesco QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM) , I don't see anything to suggest that we're in the early stages of a dramatic collapse.

It doesn't matter which ETF you check out. While IWM broke above its 200-day simple moving average (SMA) before rolling over and SPY tailed off that reference point on Tuesday, both charts are similar. And even though QQQ hasn't tested its 200-day SMA, it has a nearly identical chart pattern. All three ETFs are overbought based on the Relative Strength Index (RSI) and they are between 3.25% and 3.60% away from their 21-day exponential moving averages (EMAs). But remember, overbought and extended aren't the same as bearish and broken down.

While it would make life a bit simpler if we could say confidently that Wednesday's decline was the beginning of a severe decline, we don't have sufficient evidence to make that assertion. At best, I think we look at QQQ, point to the volume-weighted average price (VWAP) anchored to the Aug. 10 Consumer Price Index (CPI) report release and say that as long as price is closing above that point (currently $328.50), the bulls have the upper hand. A close under that point doesn't kill the uptrend, but it paints a target on the 21-day EMA that probably can be tested within a day or so.

Aside from QQQ, I've also got my eye on the SPDR S&P Biotech ETF (XBI) . Buyers have been trying to sustain a break above the 200-day SMA for more than a week but appeared to have run out of energy Wednesday. If you're a short seller, you'll need to keep an eye on the 21-day EMA as it's just 2% beneath Wednesday's closing price. But if you're more interested in buying the dip, like I am, keep an eye on the low $80s as the 50-day SMA is at $80 and the VWAP anchored to the June 14 swing low is currently around $80.50.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Byrne had no positions in the stocks mentioned.

TAGS: Index Funds | Indexes | Investing | Stocks | Technical Analysis | Real Money | ETFs

More from Stocks

Rule of the Week: Don't Fight the Fed

James "Rev Shark" DePorre
Jan 30, 2023 4:33 PM EST

We've got a mix of earnings, a rate decision and nervous investors.

3 High-Yield Dividend Tech Stocks for Income Investors

Bob Ciura
Jan 30, 2023 2:35 PM EST

Now could be a very good time to capitalize on sustainable income streams from a sector where dividend income is scarce.

Checking on AMD's Stock Charts Ahead of Tuesday's Earnings

Bruce Kamich
Jan 30, 2023 2:10 PM EST

Here's what to avoid for now.

Is This Mid-Cap Oil Stock Ready to Capture Its 'Big Winner' Potential?

Bruce Kamich
Jan 30, 2023 1:29 PM EST

Here's our technical strategy for trading oil producer Denbury.

Don't Fight the Fed? What About When the Fed Is Fighting Its Own Past?

Peter Tchir
Jan 30, 2023 1:00 PM EST

The biggest risk to markets in the coming weeks is the realization that the Fed has already gone far too far, and the economy is rolling over.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:27 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • 11:03 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend On Real Money

    It's time to start using this power to build great...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login