In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, looks at the market movements following tech’s tumble.
On Tuesday, Janet Yellen, chair of the Federal Reserve, stated: “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat”.
The market was already trending lower on the day after its recent teetering around new high territory. Clearly, Yellen did not help.
However, the main index to break down Tuesday was the tech-heavy Nasdaq 100 (represented by the Invesco QQQ Trust [QQQ]).
The QQQ had been range bound between highs at $342.42 and $333.97 for most of April. On Tuesday, it gapped lower and continued towards its 50-day moving average at $324.91.
This will be the next support area to watch for the major index to hold.
Let us check how the other indices fared through Tuesday.
- The iShares Russell 2000 ETF [IWM] barely held over its 50-day moving average (DMA) at $223.27.
- The SPDR Dow Jones Industrial Average ETF [DIA] sat roughly $1 away from new highs at $242.43.
- The SPDR S&P 500 ETF [SPY] held over support at $410.59.
The key takeaway is that other indices are still at or over their support areas.
Additionally, on Monday we talked about the importance of the iShares Transportation Average ETF [IYT] holding near highs as an indicator for underlying market strength.
Now, with two of the major indices lingering near their 50-DMA we can test our theory, if the IYT continues to help the market hold or if it begins to selloff.
We would be more negative had IYT closed under yesterday’s low after making new all-time highs. But it held and therefore remains the leader.
Furthermore, junk bonds (represented by the SPDR Bloomberg Barclays High Yield Bond ETF [JNK]) are holding their 50-DMA, which is where we look for risk appetite.
Therefore, we could see a turnaround Wednesday, or, if IYT and JNK gap lower, a much uglier continuation downward.
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.