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.
