It is possible that the S&P 500 could rally for a few days, but given the heavy selling over the past few weeks, we would expect any rally to be short-lived and followed by a test of the recent swing low (or potentially the 200-day MA).
The Nasdaq Composite is the only major index still trading near the 50-day MA. Although it has shown solid relative strength, will it be able to hold the 50-day MA if the S&P 500 heads lower after a short-term bounce?
Nasdaq leadership for the most part is holding up. There have been a few breakdowns and leadership has narrowed, but there are still a handful of quality stocks holding up near 52-week highs.
Our timing model remains in “neutral” due to the relative strength of the Nasdaq. As such, an ugly breakdown below the 50-day MA in the Nasdaq would send the model into “sell” mode. However, if the Nasdaq is able to hold on to the 50-day MA and the market can gain some traction with a few weeks of base building, the model could potentially shift back into “buy” mode.
On the ETF side, the weekly charts of gold and silver mining ETFs ($GDXJ) and (SIL) look pretty good, especially with last week’s bullish reversal candle off the rising 10-week moving average. See last Friday’s commentary for the writeup on Gold Miners ETF ($GDXJ).
Silver Miners ETF ($SIL) has settled into a tight trading range on declining volume over the past four weeks . Last week’s low undercut the lows of the range and the rising 10-week MA before reversing to close near the highs of the week. The bullish reversal presents us with a low risk entry point.
As for leadership stocks, we are currently monitoring Tesla Motors ($TSLA) for a pullback entry on a test of the rising 10-day MA (if one develops). Since market conditions are not ideal, a pullback to the 20-day EMA could also be in play if the 10-day MA does not hold. We will have to see how the action plays out during the pullback:
We do have one new setup on today’s watchlist in Twitter ($TWTR), which has pulled back in from a recent earnings gap up on lighter volume to the 10-day MA.
This article is brought to you courtesy of Morpheus Trading, LLC.