Choosing the right heading

In this article, Mish Schneider, director of trading research and education at MarketGauge.com, considers how the market might reach a steady course.

The market is confused and choppy. This can be seen by looking at the major indices as most disagree with each other.

This is important, because when the overall market moves together it makes trading easier, as it allows traders to better time their entries based on pullbacks and breakouts.

On Wednesday, both the SPDR S&P 500 ETF [SPY] and the iShares Russell 2000 ETF [IWM] moved up towards resistance from recent highs.

On the other hand, the SPDR Dow Jones Industrial Average ETF [DIA] cleared all-time highs.

Meanwhile, the Nasdaq 100 (represented by the Invesco QQQ ETF [QQQ]) has yet to rally back over its 50-day moving average (DMA) at $320.26.

It should be noted that the Nasdaq has many big tech holdings, which have struggled at their current prices, hence the lagging performance of the QQQs.

With that said, the next big question, now that the US House of Representatives have passed the next stimulus plan, is will the remaining indices follow the DIA upward, or will they continue to move at their own pace.

Another concern is rising inflation, which the US Federal Reserve brushed off, with its Core CPI report beating estimates.

If inflation is kept low along with bond yields, investors and the market will stay happy.

However, the market may have its own theory of rising inflation. One downside to the CPI report is that it does not include food and energy, due to their increased volatility.

For now, if the market moves higher, we can take the Fed’s word on inflation and watch for key resistance in the IWM and SPY, as well as the QQQ’s 50-DMA break.

And if the market cannot decide where to go, expect more choppy days ahead.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.