Monday marked one of wildest trading sessions in recent memory. Minutes into the session, the S&P 500 triggered a limit-down order, which temporarily halted trading. That said, let’s look at a few top stock trades, as we get an overview of the entire market.
Top Stock Trades for Tomorrow No. 1: S&P 500 (SPY)
When the SPDR S&P 500 ETF (NYSEARCA:SPY) is down almost 8% from the highs, it usually drums up some fear. At one point in the session Monday, the SPY was down almost 8% — for the day. In other words, it was a bloodbath, even though the decline looks mild compared to oil.
This is a good time to zoom out and look at a 10-year weekly chart. It highlights the overall trend of the market, and shows just how well equities have performed over the past decade.
This trend may or may not hold up in the coming days or weeks. The 150-week moving average has been a decent bounce zone, launching the SPY higher in 2011, 2016 and 2018. It comes into play near $271, which would put the index down about 20% from its 52-week highs last month (crazy, right?).
Tops tend to be a process and the action over the past three weeks have been anything but a process. We should be able to snag a bounce in the $265 to $270 zone, although measuring the magnitude of that bounce is tough to do with the CBOE Volatility Index (VIX) north of $50.
I continue to preach safety with the VIX over the $30 to $35 range.
On an eventual bounce, look for a rebound up to the 50-week moving average and prior $300 breakout zone. Should the 150-week moving average fail as support, though, it puts the 200-moving average on the table.
Below that, and the $240 to $245 area is possible. Remember, there’s no need to be a hero and catch the bottom. You can always wait for a bottom to occur, then trade against it.
Top Stock Trades for Tomorrow No. 2: Dow Jones (DIA)
The SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) does not have as well-defined moving average support as the SPY. However, it does have a well-defined uptrend (blue line).
The DIA ETF is breaking below the 150-week moving average in Monday’s action. If bulls can reclaim this mark, it puts the 50-week moving average in play. Should shares continue lower, however, $225 and the 200-week moving average is on the table.
Top Stock Trades for Tomorrow No. 3: Nasdaq (QQQ)
The PowerShares QQQ ETF (NASDAQ:QQQ) has held up best amid this decline. The ETF bounced hard off the 200-day moving average, although Monday’s crushing action obviously dealt a blow to the technicals.
The QQQ has been a huge beneficiary of stocks like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) bursting above a $1 trillion valuation over the past few quarters.
Now, the index is struggling to hold its 50-week moving average. If it can’t and should the $195-ish breakout area give way, it technically puts a fall down toward $175 on the table. I don’t know if it will get there or if so, when it will happen. But if it does, there should be decent support.
Along that area, the QQQ will find uptrend support (blue line), the notoriously strong 150-week moving average and a reversal from May.
Top Stock Trades for Tomorrow No. 4: Small Caps (IWM)
The iShares Russell 2000 ETF (NYSEARCA:IWM) is an interesting ETF to follow. It’s worth noting that while the SPY, DIA and QQQ all erupted to new highs, the IWM couldn’t take out its 2018 high.
After last week’s action and Monday’s 8%-plus decline, the IWM has now broken below the 50-week, 100-week, 150-week and 200-week and 250-week moving averages. Wow, that says a lot, doesn’t it?
It’s also below uptrend support (blue line). So, what should investors do now?
I personally would avoid IWM right now. It’s too directionless and below too many key support marks. At least, I would avoid it until it can show us some type of definitive short-term bottom. That may be at $130 or maybe $125. Below puts the $120 breakout from 2016 on the table.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL.