We’ve seen five straight weeks of investors and traders biting their nails over each data point compounded by the building anxiety of the Fed’s December interest rate decision.

The market has been unwilling to move one direction or another for more than a day or two. As a result, we’ve seen tightening trading ranges in the major indices that coiled the markets for what’s likely to be a long-awaited 10-15% move.

Just after the election delivered nothing in the way of a catalyst, the market turned its attention to the Fed and every single data point that hit the tape.

But now things have started to shift…

This market has virtually decoupled from the Fed, but it still wants to make sure the Fed doesn’t make any strong-handed moves that would cause things to fall like a house of cards.

At the same time, we’ve watched the logjammed activity lead to a potential volatility moment for the market that increases the odds of a new emerging trend move.

Over the last few weeks, you’ve heard me talk about how two moves in the market do not constitute a trend.  

I stand by those words.  

That said, last week’s activity in the Nasdaq 100 (QQQ) and S&P 500 (SPY) have brought the market to the edge of that directional move that clearly favors the bears.

Here’s a chart of the QQQ…

Note the break below the ETF’s 50-day moving average (MA50) on Thursday followed by a second consecutive close below this critical trendline.

The last break below this trendline occurred on August 30, 2022, a move that set the market into a new directional trend resulting in QQQ trading 15% lower over the next 30 trading days.

The QQQ shares also broke below their bottom Bollinger Band during that August 30th signal.

Just this past week – on Thursday and Friday – the market created a carbon copy of the movement we saw back on August 30th 

As an additional note, the Bollinger Bands recently tightened to their smallest reading over the last year on the QQQ, a signal that the market was setting up for a volatility moment.

Next, we’ve got the SPY…

Not to be outdone, the SPY shares cracked their MA50 Friday. Now, this is where a “wildcard” lies for the market.

My approach requires that these ETFs notch two days below their respective MA50s to signal a higher potential for follow-through to lower prices.

Friday’s first strike below the SPY MA50 requires another close lower to confirm the potential for this volatility moment to extract a new trend from this sleepy market.

From the headline index level to ETFs, moves over the last week have been consistent with a recurring theme in the market… BEAR-MARKET RALLIES.

For now, my eyes remain closely focused on the potential for the SPY to continue its reversal.  

The simplest way to gauge any follow-through on last week’s selling is to monitor the percentage of companies closing above their respective MA50s.

The reason is simple: the more companies that fall below this critical trendline, the more momentum will accelerate downward.

Friday’s reading of this percentage dropped to 60%. The sudden shift lower once again creates a potential “carbon copy” of what you and I traded through in September.  

You must recognize the bull’s side of the market to trade a breakout into a trend correctly.  

In other words, let’s make sure to recognize anything that could change what feels like the likely trajectory of the market.

This week will likely start with a test of the $3,900 level on the S&P 500 along with a retest of the QQQ’s $280 price.  

Watch for any heavy volume buying at these prices to tell us that the bulls are mounting a fight.

Light volume trading is normal during the holiday trading season.

Watch the market for volatility to increase if volume drops.  This may provide a short bounce from the critical levels just identified.

Upside and downside risk levels/targets

  •         S&P 500

o   Upside $4,200 upon a rebound that breaks $4,000

o   Downside $3,600 upon a break below $3,800

  •         Nasdaq 100 (QQQ)

o   Upside $315 upon a break above $290

o   Downside $250 upon a break below $270

Bottom line

At the moment, the odds appear to favor another downward spell. This would cause a self-fulfilled move lower into the end of year as we prepare for January, which is seasonally one of the weaker months of the year.

These are conditions I’ll be monitoring, as well as the day-to-day signals and technical developments, to move us toward our goal of doubling the account.

I’ll also host a few live stream sessions this week to keep updating you on the market and any potential changes to our plan of attack.


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