The time frames I operate by are in alignment with the trends of the 50 and 200 day moving averages. A day trader would probably operate by 10 and 20 day moving averages (orange & gold dotted lines on the charts below), accounting for very short-term moves in markets and stocks.
Hence, my oft-repeated view that shorting is generally not for me without a) a confirmed market breakdown and b) setups. Let’s briefly review the DJIA, SPX, NDX and SOX.
DJIA is losing its short-term EMA 10 & 20, but is testing the up-trending SMA 50 with the up-trending SMA 200 below. After making a higher high, there is no apparent technical problem here yet, other than a correction.
SPX is intact after a higher high but should really hold above the last two lows or it would get uncomfortable. Remember those gaps we noted several weeks ago on US indexes? They were made on the initial October up move off of the September correction. I noted at the time that I don’t want to see those fill, at least not without good risk management in place (like cash). It would be neatest for today to be SPX’s last day of this correction. If not, it gets tense.
NDX has been noted for a few weeks as a negative divergence and as you can see on our handy new indicators page for subscribers, the QQQ/SPY ratio is breaking down. But nominal NDX (along w/ QQQ) is looking for a fill of that October gap and a test of the up-trending SMA 200 (major daily trend marker). Painful? Yes, for all-in bulls. Broken? No. In my method, it ain’t broke til it’s broke. That could be something like a drop below the October low. Carrying it further, a shorting setup could like like a bounce from that breakdown back to resistance at around 15600. But that’s getting ahead of things. NDX is making a major trend test and is intact (to the time frames I prefer to use).
SOX is concerning in that there is a lot of space between the current price (breaking down below the SMA 50 today) and the SMA 200. Recall our view that leaders NVDA and AMD have been vulnerable. Out ahead a good buying opportunity for Semis could develop, but it could be in the 3400-3500 area. It’s an up-trending, intact index taking a hard hit. Day trader shorts may be on these things but again, I’ll personally wait for the uptrend test and probably take more longs.