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After the close last Thursday, our mid-term system triggered a sell signal. The powerful move on Thursday pushed the market to a level that was overbought enough to trigger selling among market participants. The market did move higher on Friday and today, but this was mostly expected. Most tops do not occur after a strong move (such as the one from last Thursday) and rarely do market's top on a Thursday. Today, was the likely end of the recent uptrend. Volume has lightened the past three trading days and tomorrow is "turnaround Tuesday". Often the stock market tops on Monday and we believe that the move lower will start tomorrow.
The first chart is of QQQQ. You can see how the ETF had three consecutive days of lower volume. It is also at the upper end of its trend channel. The dying volume of last week created a base. This week's dying volume is most likely signaling a top. There is more upward price movement with the decline in volume, there is strong resistance above, our system triggered a sell signal already, and as mentioned above, we are at the top of the trend channel. If today did not mark the top, we do not expect a move beyond the 43 resistance area.
SMH broke above its triangle formation and its 200 day moving average last week. Volume has lightened the last three trading days and we are currently at pretty strong resistance in the 36 area. We believe that SMH has already topped as well.
IWM may move to the 77 area before the expected pullback. The 77 area will be right below all-time resistance and a great place for market participants to sell. Therefore, we believe that if IWM does have any more strength left, it should end its current upswing near 77. The RSI reading was above 70 today, suggesting extreme strength. IWM has now proven itself and is ready for a pullback. Getting above 70 was necessary for the longer-term trend, but now that the 70 level has been reached, a likely pullback will occur before a continued move higher.
Most likely the stock market topped today. We do not anticipate a huge fall, but the market is overbought and we expect a pullback to happen soon, most likely starting tomorrow.
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