As a long-only trader, there's nothing worse than flipping through a bunch of charts and realizing that nearly everything looks like garbage.
Technically, the Nasdaq doesn't look bad at all. The Invesco QQQ Trust (QQQ) still holds above its short-term exponential moving averages (EMA), including the shortest moving average on my screen, the 5-day EMA. That said, when nearly every sector that isn't tied to fixed income, gold, or technology is consolidating or churning beneath a 200-day moving average, it's awfully difficult not to be concerned for the overall health of the stock market.
Take the VanEck Semiconductor ETF (SMH) , for example. Two of that ETF's largest components are Nvidia (NVDA) and Advanced Micro Devices (AMD) , and both stocks have performed beautifully since November. As long as stocks like AMD and NVDA continue to work higher and bids remain in place during shallow dips, traders will continue to seek refuge and shelter in ETFs like SMH.
But what happens when investors and money managers realize that the pool of strong stocks is drying up? My guess is there will be a flood of folks looking for the exit at the first sign of weakening chip demand or slowdown at a single leading semiconductor company.
Simply put, narrowing markets, be they sector or breadth based, tend to make investors nervous. Timing the eventual break is bloody difficult, but any close beneath a 10-day EMA would be cause for concern, while a break of the 21-day EMA would have me abandoning ship (provided the rest of the market remained as unbalanced as it currently is).
And how about bonds?
It wasn't so long ago that rising rates were the problem. But as we saw Thursday, the SPDR S&P 500 Trust (SPY) topped out around 11:15 a.m. ET, and the iShares Barclays 20+ Year Treasury Bond ETF (TLT) put in a low about the same time.
Remember that bearish reversal on TLT on March 13? Don't look now, but that reversal has turned into a bull flag that could send this bond proxy through resistance around $109.50 to $110.
Doug Kass likes to say that this is an ideal market for unemotional and opportunistic traders but not for the buy-and-hold crowd. And he is dead-on accurate! This has been and continues to be a tortuous market to analyze.
While technology continues to be a place for active traders to seek shelter from the banking storm, I don't expect anyone to trust this market until the price action in the small-caps improves. And as you already know, small-caps, as represented by the iShares Russell 2000 Index ETF (IWM) , are likely dead money until the regional banks find something to rally on.
While the regional banks control the IWM's price action, my primary point of interest Friday is how the IWM behaves upon testing or breaking beneath Thursday's intraday low.