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Today's move higher was a bit of a surprise and leads us wondering if the pullback has started. The pullback in SMH has been strong and today's action did little to harm the recent downward move. QQQQ has moved to last week's resistance, suggesting a possible breakout to the upside. IWM is still in its downtrend, but this could easily change, as soon as tomorrow. Let's look at the three charts in more detail.
You can see how QQQQ began its pullback to the uptrend line last week, but failed to hit it. Today's reversal looks more like the continuation of the recent uptrend, as opposed to a counter-trend move against last week's fall. A counter-trend move would most likely not have reached last week's resistance and would not have been in one powerful day on heavier volume.
The chart of SMH has a completely different look. The ETF plummeted last week and today's rise was insignificant. We could see a counter-trend move here, which would bring SMH toward the 200 day moving average. With the ETF hovering over the 50 day moving average, this will be a pivotal point in the mid-term direction. If SMH does not break above the 50 day average in the next day or two, we have to assume that it is headed to the 32 support area (indicated on the chart). At this point, a break above the 50 day moving average should only bring SMH to its 200 day moving average and will not be looked at as the beginning of a new move higher.
IWM's fall has been mild, but it nearly hit its all-time resistance last week, suggesting that a pullback would be coming. Where QQQQ looks like it is headed higher and SMH looks like it is headed lower, we have no bias on the short-term direction of IWM. With such a weak pullback so far, we could easily see a push to new highs before a stronger pullback. As all-time resistance has nearly been hit, we could see the possibility that we are in the middle of the pullback and IWM is headed to support in the 73, 74 area (indicated on the chart).
It is extremely unlikely that SMH will go down as QQQQ breaks higher. Therefore, the next few days should tell us where the market is headed in the short-term. Even if QQQQ does break higher, we do not foresee a move above the 43.50 area.
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