The stock market is at a crucial point. Within the next few days we will know if the decline that started in the beginning of December was

The stock market is at a crucial point. Within the next few days we will know if the decline that started in the beginning of December was only a short-term decline or the beginning of a larger correction within the current long-term uptrend. Some significant support areas have already been broken in some indices, while other indices are still above critical support.

The first chart is of the S&P 500. You can see how the index is near the lower end of the trend channel that started toward the end of November. Crucial support is also in the 1410 area. A break of the uptrend line will suggest that a larger correction is unfolding.

The second chart is of IWM. You can see how the ETF has managed to stay above its crucial support level of 77 and its 50 day moving average. Strong resistance is in the 79 area. A failure of IWM to break through this area could suggest that a head and shoulder pattern would be developing. The left shoulder was formed in the middle of November and the head was formed in the beginning of December. A sustained break above 79 would invalidate this possibility.

QQQQ is also at critical support. The 43 area acted as strong resistance in April and October of 2006. As we have broken above the area, it now serves as powerful support. A break of 43 would likely push QQQQ to 42. The ETF is sitting below the 50 day moving average, but this is of little concern if it finds support at 43 and breaks back above the average within the next few days.

SMH has the most bearish looking chart. The head and shoulder formation is still a strong possibility. We need the ETF to break above the higher downtrend line and eventually the horizontal resistance right below 36 to invalidate the formation. A break of 33 should push SMH to the lower support lines indicated.

The next two days should be extremely important. IWM has bounced off of its critical support area, while QQQQ and SMH are sitting right near their support zones. A break of these areas will have negative implications for the coming days, while the ETFs bouncing off of these crucial areas will suggest the end of this decline.

Happy Holidays from the Nasdaq Wizard Staff!