Short-term Glass is Half Full – For Now

Bulls and Bears Slug it Out

This is just a quick update with three charts, SPY and QQQ. Both charts show RSI(14) and 20-day High-Low%, which is the percentage of 20-day highs less the percentage of 20-day lows for each index. This is a short-term breadth indicator that can help define the short-term trend. These charts were created with Optuma and chart is linked to a basic chart at StockCharts.

The first chart shows weekly candlesticks with a big four week move that featured three long white candlesticks. Trading then turned volatile and seriously indecisive the next two weeks with a long lower shadow below 275 (weekly low) and long upper shadow above 290 (weekly high). Despite big swings during the this two week period, there was little movement from the 20-April open (Monday) to the 1-May close (Friday). SPY is clearly hitting a make-or-break point as the bulls and bears slug it out for control.

SPY Holds Short-Term Uptrend

The short-term trends are up for both SPY and QQQ. SPY represents the broader market environment, while QQQ represents big tech and many of the current market leaders. Most tech-related ETFs will go the way of QQQ, while most stock-related ETFs will go the way of SPY.

Even though SPY is trading in a potential reversal zone, the short-term trend has yet to back down (cue Tom Petty). SPY retraced between one half and two thirds of the prior decline with a surge that neared the 200-day SMA. The long-term trend remains down, but the short-term trend is up with the green line marking support from the lows of the last three weeks (273). A break here would reverse the short-term uptrend.

The middle window shows RSI(14) moving above 50 on April 8th and remaining above 50, which is the midpoint. This means the momentum cup is half full. Watch for a move below 50 to signal a downturn in momentum. The lower window shows SPX 20-day High-Low% weakening in mid April, but holding positive for the most part. The indicator finished at -2% on Monday. A move below -10% would show an expansion of 20-day lows and be negative.

I still expect a downside break in SPY simply because the long-term trend is down and the Index Breadth Model remains bearish. The bigger forces are bearish and the assumption is that the bigger forces will ultimately prevail.

QQQ Outperforming SPY

The next chart shows QQQ retracing over two thirds of the prior decline and trading above its rising 200-day. Clearly, QQQ is stronger than SPY. The green zone marks support from the 14-Apr gap and 21-Apr low (call it 203).

RSI(14) moved above 50 on April 6th, two days before SPY, and remains above 50. NDX 20-day High-Low% finished at +1% on Monday and remains positive. Thus, the momentum cup and the short-term breadth cup remain half full. Watch for a move below 50 in RSI and -10% in High-Low% to turn short-term bearish.

Note that I will post another article today that will show backtest results for StochClose(125,5), which is the 5-day SMA of the 125-day Stochastic based on closing prices. You can read more on this indicator here.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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