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Mish Schneider Should investors proceed with caution?

In this article, Mish Schneider, director of trading research and education at MarketGauge.com, explores what the different indices are telling us about risk.

On Wednesday, the iShares Russell 2000 ETF [IWM] confirmed a cautionary phase change with a second close under the 50-day moving average (DMA).

A cautionary phase is defined by current price sitting under the 50-DMA, with the 50-DMA over the 200-DMA.

Both IWM and the Nasdaq 100 (represented by the Invesco QQQ ETF [QQQ]) are in cautionary phases.

This is important, because the four major indices are split between bullish and caution phases.

Having said that, the next key support levels to watch are recent lows.

For the QQQs, this would be last week’s low at $309.66 and $207.21 for IWM.

These are important areas to hold, as they are within the recent trading range and can offer support for the market to spring back from.

However, while IWM and QQQ closed the day down, the SPDR Barclays High Yield Bond ETF [JNK] is showing that buying pressure is still active.

Yesterday, JNK closed green for the day and it has been able to hold over its 10-DMA at $107.83.

If buyers continue to step up, the next resistance level to clear would be $108.62 from the 50-DMA.

Because high yield bonds are riskier investments, this shows that some investors are seeing this market pullback as a buying opportunity.

Whether that is the correct approach remains to be seen, but at least we know which areas to watch for the market to hold or clear over.

To add one last piece of information into the fray, MarketGuage’s proprietary risk indicator has recently shifted from a neutral standpoint to risk off.

If the indicator stays in the risk off position, going to cash or holding risk adverse positions could be the safest plan for the moment.

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.

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