This Will Tell When Market Support Truly Fails

Is it time to panic and sell? Is it time to be rational but still sell? Or is now one of those repeated buying opportunities that we all regret not taking advantage of a week after the selloff?

In order to get a better understanding of what part of the cycle we’re in, I tend to start with the fundamental inputs and then move to technical inputs. Right now, we’re getting frequent updates about a potential war in the middle east and we’re simultaneously starting into earnings season for some more company and sector-specific news.

Once those fundamentals are factored in, technicals take charge. As fundamental inputs are processed, the chart formations start to become clearer and tell us how the market momentum can be viewed to predict future price action.

First, I like looking at tech as one of the primary leaders of this rally:

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With QQQ, we can see some alarming signs of potential for failure. Dropping below the 50-Day Moving Average is a cause for concern for the bull. If this is to recover, there has to be a driving force, and so I like to look at my main leading indicator for tech, and that’s semiconductors:

SMH has held up relatively well and is still above the 50-Day Moving Average. Semiconductors tend to lead the tech sector into major rallies, and they tend to lead the tech sector into liquidation. Until I see Semiconductors break key support levels, I cannot say with confidence that the market is ready for liquidation. Given this, I’ll be looking at the tech sector for potential new long positions in the coming days. However, if semiconductors do fail at support, it may be time to stop out of long positions and start looking at some aggressive short positioning.

This is the best time for me to leverage my Watch List, as I can look for names that have potential bullish leverage plays with options or bearish leverage plays depending on how semiconductors perform in the coming days.

As always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.

Keith Harwood

Keith@optionhotline.com

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