Nasdaq, Junk Bonds Reversals Warn Investors

Will today’s market tremors shake the Nasdaq 100 ETF (QQQ) out of its solidly bullish 4-month channel?

On April 14th, QQQ broke above its 50 day moving average (blue line) and began the trend that you see above. A steady trend line with 6 points is an impressive feat.

But with Junk Bonds reversing lower, today’s market action suggests we may see several tests of key trend lines sooner rather than later. 

The Nasdaq 100 and its ETF QQQ closed under its prior day’s low and under the 10 DMA which makes me cautious. 

Additionally, the S&P 500 (SPY) came very close to having a bearish engulfing pattern. 

nasdaq reversal lower bearish correction investing news image august 11

However, it’s not the action in the QQQ, or the SPY or even the Russell 200 (IWM) that is my cause for concern. It’s the bonds.

 The TLT had its biggest one-day percentage move lower since June 16th today, and strangely the Junk Bonds (JNK) and stocks seemed to ignore it. 

Additionally, GLD and SLV had massive declines today. They had their biggest one-day percentage drops since 2013 and 2011 respectively, and stocks seemed to shrug that off too. 

However, when JNK started to selloff late day in conjunction with stocks, neither bounced back. 

The day ended with JNK, LQD, and HYG all well below their 10 DMA. This is a risk-off move that could spill over into the stocks, and not just the mega-cap tech names. 

This fear was also reflected in the VXX which closed with a big bullish engulfing pattern (which is not bullish for stocks).

One day doesn’t make a trend, but if JNK, LQD, and HYG continue lower, stocks may soon follow.

Mish has said many times in this blog to keep your eyes on JNK. 

That’s especially true right now.

S&P 500 (SPY) Big inta-day swing created and outside day that closed near low of the day and near low of yesterday. Be cautious under 332. Watch 330 as important support

Russell 2000 (IWM)  Tapped the 160 resistance area and sold off. Weak outside day.  153 key support

Dow (DIA) Stopped at logical area of resistance and closed on LOD, 270 now pivotal support

Nasdaq (QQQ) Closed under previous day low and 10 DMA. 260 is key support level and a trendline.

TLT (iShares 20+ Year Treasuries) Biggest down day since June 16th. 50 DMA support is at 165

Twitter: @marketminute

The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.