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It is difficult to know right now if the stock market had ended its short-term pullback last Thursday or if we are only pausing before another move lower. Regardless, our mid-term system remains in buy mode.
QQQQ ran into resistance today and reversed. Major support is in the 46 area. It is possible that QQQQ is carving out a head and shoulder formation. The first shoulder would be May 9, the head May 23, and the height of the second shoulder could have been formed this morning. If this is true, then the 46 area is the neckline and a break of that area would push the ETF to the 50 day moving average and the horizontal support around 45.50. A sustained move above 47 would invalidate the possible head and shoulder formation.
SMH seems to have already broken below its head and shoulder formation. It is possible that the ETF was just filling the gap from April 24 and that the move lower has already ended. If Thursday's break lower did validate the head and shoulder formation, we could see SMH falling as low as 34.50. First, we need to wait and see how the ETF responds to the 50 day moving average and the 35.50-35.70 support area if the fall continues. A sustained move above 37.50 would invalidate the head and shoulder formation.
IWM looks the most healthy of the three ETFs. It has managed to stay above its 50 day moving average and is right below all-time highs.
It is possible that the short-term pullback has not ended. If not, the continued move lower should not be too extreme and we will still likely end with a positive result this buy signal.
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