Dr. Wish

We went to the brink and turned back, so the up-trend remains intact. It is still a weak rebound, however.   There were only 40 new highs but 237 new lows on Wednesday.   Only 57% of all U.S. stocks rose, but 90% of the Nasdaq 100 stocks rose.   So this is yet again a lop-sided rally, primarily among growth and tech stocks.   This daily chart of the QQQ (Nasdaq 100 stock ETF) shows that it held its lower Bollinger Band and climbed back   above its 30 day average.

The GMI rose to 3 and therefore did not flash a Sell signal.   We will have to wait to see if this renewed up-trend can sustain itself.   I own a little TQQQ and will add to my position if the QQQ holds. Only two stocks came up in my scan for stocks at new highs with strong recent earnings—SWKS and UTHR. Both are above their green line break-outs. Check out these weekly charts.

The SPY weakened on Tuesday as did the QQQ. The GMI could flash a Sell signal with another decline on Wednesday. Small stocks are about to enter a serious Weinstein Stage 4 decline, as shown by this weekly chart of IWM, the Russell 2000 Index ETF. In fact, IWM appears to have put in a double top. Note that the 30 week average (red line) is about to turn down. With the small cap stocks caving in, can the rest of the market be far behind?

Tuesday will largely tell the story whether this 27 day long short term up-trend in the QQQ is likely to end.   QQQ and SPY are sitting right on their 30 day averages and their lower Bollinger Bands. If they close below these key levels I suspect we are likely at the beginning of   a significant decline. The T2108 indicator is now at 32%, lowest since it hit 28% on August 8, just before the latest up-trend began. And the GMI has fallen to 3. This daily chart of QQQ shows that the underlying Nasdaq 100 index is on critical support. Note also the heavy selling volume (red spikes) the past two days. (Click on chart to enlarge.)

Note the similar pattern in the SPY:

Tuesday’s action will be very important to determining the near term trend of the market.