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The ETFs we follow have generally been in a sideways pattern the last four weeks. Markets usually consolidate (move sideways) after a strong move higher to make room for more gains in the weeks ahead. Markets rarely move lower following an upward move and consolidation.
The QQQQ uptrend line is no longer valid. The uptrend line was broken by the strong down day that happened toward the end of November and it is now clear that a consolidation is happening. A consolidation puts an end to the past uptrend. Therefore, the blue lines are no longer valid. You can see how the 50 day moving average is approaching the ETF. Currently, QQQQ has massive support at 43. Not only horizontal support, but also 50 day moving average support. It is possible for QQQQ to move a little lower during this sideways action, but we do not foresee QQQQ breaking the 43 area. A break above the November highs will end the current consolidation.
SMH is at a crucial point. We really need to see SMH stay above the 34 level. It is possible that a bottom was found in the beginning of December (marked with green arrows), but a break of the 34 area would make that unlikely. The strong volume spike on that day gives more strength to the argument that a bottom was formed. We cannot eliminate the possibility of a bearish head and shoulder or double top formation at this point. A break above November highs will end any fear of SMH carving out a bearish formation. Staying above 34 is extremely important right now.
IWM is still above our blue uptrend line. On Friday the ETF found support on this line again. The move to new highs has been on awfully weak volume. The bullish picture would improve with strong volume on the next break to new highs.
The markets have continued to consolidate the past week, but with the 50 day moving average approaching the current price level of QQQQ, we do not feel that the sideways action will continue for much longer.
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