Is the stock market sending mixed signals to falling buyers?

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On Tuesday, the stock market attempted a rally with a higher initial spread followed by volatile price action throughout the day.

Because the market is not selling like it did early Monday, it shows that the market is struggling to rebound quickly.

Over the past week, the media have continued to promote the idea that buying cash is the best plan right now, as this strategy has worked well throughout the year.

However, the timing of a market entry was not so easy as traders who viewed the 50-day moving average as an important support level for a lower entry turned out to be wrong because of the Monday gap lower.

As the charts above show, the S&P 500 (SPY), Nasdaq 100 (QQQ) and Russell 2000 (IWM) all broke their 50-DMA on Monday.

Looking back at SPY, falling buyers largely bought as SPY traded near its 50-DMA.

Although price failed to keep the 50-DMA in the SPY, Monday provided a new round of buyers as the market rallied towards the end of the day.

Here’s the problem: If we look back at the previous lows in the indices, they were quickly followed by big green days.

Current price action is more fragile with wide range days associated with relatively weekly closing prices.

That said, on Wednesday, an FOMC announcement will be made along with a Fed press conference.

The market may hold its breath ahead of the meeting and wait for clarification or more accommodating speech from the Fed as a reason to recover.

On another note, High Yield Bonds (JNK) are showing strength thanks to this current pullback as they did not close below their DMA 50.

JNK can act as an indicator of risk, as the strength of this ETF shows that investors are always ready to take on risky corporate debt.

So while we have the green light from the High Yield Debt ETF, we need to watch out for lower than average prices as well as potentially crucial announcements from the Fed on Wednesday.

Analysis and summary of trading ETFs:

S&P 500 (SPY) Must contain more than 436.56.

Russell 2000 (IWM) Resistance to 200-DMA at 219.

Dow Jones Industrial Average (DIA) 332 next level of support. 345.06 gap to be filled.

Nasdaq 100 (QQQ) 369.80 minor resistance.

KRE (Regional banks) Sitting in the support area. Must contain more than 60.88.

SMH (Semiconductors) Sitting on the 50-DMA at 265.

IYT (Transport) 241.25 now minor support. 250 resistance.

IBB (Biotechnology) 169.2 50-DMA.

XRT (Retail) 91.14 support zone. Seeming weaker with a downslope of 50-DMA.

Twitter: @minutedumarché

The author may have a position in the titles mentioned at the time of publication. All opinions expressed here are solely those of the author and do not represent the views or opinions of any other person or entity.



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