NDX (QQQ) painted a bearish engulfing candle 2 days ago and yesterday it fulfilled the minimum requirement of that signal by having a solidly negative day. However, it is above its short-term marker, the EMA 20.
DJIA has put in a small H&S with the implication of further near-term downside.
SPX made a short-term and minor double top yesterday to go with the Dow’s H&S. Like the Dow, it violated its EMA 20.
What to make of it? Tech is still the leader. If it breaks down to follow the laggards, that’ll be it. Everyone out of the pool for a while.* If not, an upside gap fill on NDX/QQQ continues to be viable, short-term. The market is looking to tack on more losses if pre-market follows into regular hours.
But let’s take a different view. The VIX popped to and through its own EMA 20 yesterday before recoiling back below it. This morning it is back above the EMA 20. If this condition holds something more than just a routine pullback will be indicated for the US stock market. Not necessarily the start of a major correction (although if we’re right on the correction view, it was likely to start somewhere around the region of this week’s highs), but the first real challenge to the sentiment relief rally. If VIX pulls back again, as you were, the relief trade could resume. As it stands now however, I don’t like the situation.
* Figuratively, at least. In practice we all need to make the adjustments that suit our particular style. This can range from 100% cash to accepting the possibility of draw downs in advance.