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The major stock market indices are either hovering near 2006 highs or have recently broken above them. We did get a mild pullback in the stock market two weeks ago, but it was not strong enough to trigger a buy signal in our mid-term system. Sometimes overbought markets continue to climb higher and ignore their overbought condition. This can lead to a correction of either a few percent in a signal or a correction of much larger magnitude. Our goal when discussing the three ETFs tonight will be to show the strong possibility that the correction this sell signal will only be of a few percent, and is therefore close to being over, if not already.
QQQQ has broken back above the lower uptrend line, but on light volume. Today was the first clear break above 2006 highs so the light volume is quite significant. If QQQQ does continue higher from here, we would assume that the move would be rather large. The ETF is just breaking out of a huge cup formation (from April to November) and we expect continued strength to be very powerful here. On the other hand, QQQQ has still not fallen from its overbought condition, the recent volume has been light, and with indices at strong resistance it is equally possible for the the ETF to reverse its uptrend this week.
SMH is still in a head and shoulder formation. Even though the ETF broke above its 50 day moving average today, the 200 day moving average is still serving as resistance. The left shoulder (September-October) lasted almost two months, so it is certainly acceptable that SMH has made a move higher here (as the right shoulder has only lasted a month so far). As long as the ETF stays below the 200 day moving average we can still assume that the head and shoulder formation stands. Only a sustained break of last Tuesday's high would call the formation into question. A break above 35 would invalidate the likely head and shoulder formation.
IWM is still up against all-time resistance. As long as there is not a sustained break above 77, we can assume that the pullback will be coming any day now.
There is a lot of important economic data coming out this week. Market participants' interpretation of this data will tell us if this week is going to reverse the current uptrend in QQQQ or if today's break higher was much more significant.
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