{"id":9054,"date":"2021-09-29T09:06:06","date_gmt":"2021-09-29T13:06:06","guid":{"rendered":"https:\/\/morpheustrading.com\/blog\/?p=9054"},"modified":"2022-04-06T15:04:53","modified_gmt":"2022-04-06T19:04:53","slug":"spy-qqq-selloff-50ma","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/","title":{"rendered":"September Stock Sell-off: Why This Time May Be Different"},"content":{"rendered":"\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929SPY.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929SPY.png\" alt=\"\" width=\"728\" height=\"644\" title=\"\"><\/a><\/figure><\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/#The_benchmark_S_P_500_Index_has_broken_its_year-long_uptrend_and_50-day_moving_average_Will_stocks_simply_rally_back_to_their_highs_again%E2%80%93just_like_every_other_correction_this_year_The_charts_indicate_this_time_may_be_different_Heres_why%E2%80%A6\" >The benchmark S&amp;P 500 Index has broken its year-long uptrend and 50-day moving average. Will stocks simply rally back to their highs again&#8211;just like every other correction this year? The charts indicate this time may be different. Here&#8217;s why&#8230;<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/#A_Definitive_Change_of_Character\" >A Definitive Change of Character<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/#Narrowing_Leadership_The_illusion_of_strong_stock_market_action\" >Narrowing Leadership: The illusion of strong stock market action<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/#Nasdaq_100_breakdown\" >Nasdaq 100 breakdown<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/spy-qqq-selloff-50ma\/#The_Trading_Plan\" >The Trading Plan<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_benchmark_S_P_500_Index_has_broken_its_year-long_uptrend_and_50-day_moving_average_Will_stocks_simply_rally_back_to_their_highs_again%E2%80%93just_like_every_other_correction_this_year_The_charts_indicate_this_time_may_be_different_Heres_why%E2%80%A6\"><\/span>The benchmark S&amp;P 500 Index has broken its year-long uptrend and 50-day moving average. Will stocks simply rally back to their highs again&#8211;just like every other correction this year? The charts indicate this time may be different. Here&#8217;s why&#8230;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a healthy uptrend, it is normal for a stock market index to occasionally pull back to support of its 50-day moving average&#8211;a <a href=\"https:\/\/www.investors.com\/how-to-invest\/investors-corner\/what-is-the-50-day-moving-average-when-to-buy-or-sell-growth-stocks\/\" target=\"_blank\" rel=\"noopener\">reliable and powerful technical indicator<\/a>. <\/p>\n\n\n\n<p>Mutual funds, hedge funds, and other institutions typically view pullbacks to the 50-day moving average (50-MA) as low-risk buying opportunities in uptrending stocks.<\/p>\n\n\n\n<p>We similarly focus on pullback buy entries in many of the <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">top growth stocks<\/a> we trade in our nightly stock report.<\/p>\n\n\n\n<p>However,<em> <\/em><strong>bullish sentiment can quickly erode when a stock or index fails to hold above its 50-MA <\/strong>after a price correction.<\/p>\n\n\n\n<p>That&#8217;s the current situation in the S&amp;P 500 and Nasdaq indices, both of which sliced through pivotal support of their 50-MAs after tumbling several percent lower on September 28.<\/p>\n\n\n\n<p>Will stocks simply cruise back to new highs again&#8211;just as they have done after every price correction this year?<\/p>\n\n\n\n<p><em>This time may be different!<\/em><\/p>\n\n\n\n<p>Continue reading for our simple technical analysis that shows why you should be prepared for a bumpy road ahead&#8211;at least in the near-term.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"A_Definitive_Change_of_Character\"><\/span>A Definitive Change of Character<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The uptrending S&amp;P 500 has pulled back to support of its 50-MA <em>nine times<\/em> since the start of 2021.<\/p>\n\n\n\n<p>Until now, every single touch of that 50-MA swiftly led to a bullish reversal back above that level the very next day. <\/p>\n\n\n\n<h5 class=\"wp-block-heading\">But not this time.<\/h5>\n\n\n\n<p>The current breakdown below the 50-MA is different because it marked the<em> <\/em><strong><em>second time in two weeks <\/em>that the S&amp;P 500 failed to hold <\/strong>above that pivotal support level.<\/p>\n\n\n\n<p>Higher volume during the September 28 sell-off means institutions were selling as well&#8211;a massive <a href=\"https:\/\/www.moneycontrol.com\/news\/business\/markets\/distribution-days-how-to-track-market-weakness-in-a-confirmed-uptrend-3507091.html\" target=\"_blank\" rel=\"noreferrer noopener\">distribution day<\/a>.<\/p>\n\n\n\n<p>Most notably, it was the first time all year the S&amp;P 500 closed below its 50-MA and did <em>not<\/em> immediately jump back above it the following day.<\/p>\n\n\n\n<p>The stock market&#8217;s sudden change of character is shown on the annotated daily chart of <a href=\"https:\/\/www.investopedia.com\/articles\/investing\/122215\/spy-spdr-sp-500-trust-etf.asp\" target=\"_blank\" rel=\"noreferrer noopener\">SPDR S&amp;P 500 ETF<\/a> ($SPY) below:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929SPY.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929SPY.png\" alt=\"\" width=\"728\" height=\"644\" title=\"\"><\/a><figcaption><em>Press to view full-sized image<\/em><\/figcaption><\/figure><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">A broken uptrend and bearish crossover<\/h5>\n\n\n\n<p>The current breakdown in $SPY means the S&amp;P 500 has broken support of this year&#8217;s dominant uptrend.<\/p>\n\n\n\n<p>Furthermore,  the declining 20-day exponential moving average (yellow line) is now in danger of crossing below the 50-day moving average.<\/p>\n\n\n\n<p>This type of moving average crossover is a bearish indicator that would point to a potential trend reversal.<\/p>\n\n\n\n<p>If that happens, we would expect further selling pressure in the near-term&#8211;or choppy price action at best.<\/p>\n\n\n\n<p>If $SPY sees a relief bounce in the coming days, <strong>expect former support of the powerful 50-MA to now act as significant resistance.<\/strong><\/p>\n\n\n\n<p>After <em>any<\/em> support level is broken, remember that former support level becomes the new overhead resistance level.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Narrowing_Leadership_The_illusion_of_strong_stock_market_action\"><\/span>Narrowing Leadership: The illusion of strong stock market action<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The current technical breakdown below the 50-MA is <em>not<\/em> the only bearish change of character we have seen recently.<\/p>\n\n\n\n<p>Behind the scenes, a stealth indicator that many investors ignore turned negative and has been weighing on the market over the past few months.<\/p>\n\n\n\n<p>Here&#8217;s why it matters&#8230;<\/p>\n\n\n\n<h5 class=\"wp-block-heading\">Bad Market Breadth<\/h5>\n\n\n\n<p>We rolled into the month of September with guns blazing and both the S&amp;P 500 and Nasdaq Composite at fresh all-time highs.<\/p>\n\n\n\n<p>That means most stock traders and investors were raking it huge trading profits over the summer&#8230;<em>right?<\/em>??<\/p>\n\n\n\n<p>Well, not really!<\/p>\n\n\n\n<p>The reality is that <em>narrowing leadership <\/em>within both the S&amp;P 500 and Nasdaq caused gains to be limited to a small handful of stocks.<\/p>\n\n\n\n<p>As the main stock market indexes were rallying to record highs over the summer, the <a href=\"https:\/\/tradingsim.com\/blog\/advance-decline-index\/\" target=\"_blank\" rel=\"noreferrer noopener\">Advance\/Decline line<\/a> (AD line) was trending steadily <em>lower<\/em>.<\/p>\n\n\n\n<p>This bearish divergence of the AD line means that market breadth has actually been <em>worsening<\/em> over the past several months.<\/p>\n\n\n\n<p><strong>Accordingly, many leading stocks actually registered losses or only minimal gains over the summer&#8211;despite the major indices trading at all-time highs.<\/strong><\/p>\n\n\n\n<p>On the chart below, notice how the NYSE Advance\/Decline line (bottom section) was trending lower while the S&amp;P 500 was trending higher (top section).<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929NYSEAD.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929NYSEAD.png\" alt=\"\" width=\"570\" height=\"629\" title=\"\"><\/a><figcaption><em>Press to view full-sized image<\/em><\/figcaption><\/figure><\/div>\n\n\n\n<p>The NYSE Advance\/Decline line peaked in June, but has been setting lower highs since then.<\/p>\n\n\n\n<p>Now, we are starting to see the end result of that bearish divergence between the S&amp;P 500 and AD line.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Nasdaq_100_breakdown\"><\/span>Nasdaq 100 breakdown<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Nasdaq 100 ETF ($QQQ) also just sliced through its 50-MA on heavy volume, suffering a 2.8% closing loss. <\/p>\n\n\n\n<p>If there is follow-through on the September 28 sell-off, then we will look for a possible <a href=\"https:\/\/traders.com\/documentation\/feedbk_docs\/2005\/01\/Abstracts_new\/Bulkowski\/Bulkowski.html\" target=\"_blank\" rel=\"noreferrer noopener\">ABC correction<\/a> to play out in the near term.<\/p>\n\n\n\n<p>The potential ABC bearish scenario is shown on the daily chart of $QQQ below:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929QQQ.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/210929QQQ.png\" alt=\"\" width=\"728\" height=\"644\" title=\"\"><\/a><figcaption><em>Press to view full-sized image<\/em><\/figcaption><\/figure><\/div>\n\n\n\n<p>In the case of an ABC correction, note that wave C should be equal in length to wave A.<\/p>\n\n\n\n<p>This would equate a <strong>potential downside target for $QQQ around $353 in the short-term. <\/strong>  <\/p>\n\n\n\n<p>Another possible scenario that could play out in the Nasdaq 100 is an &#8220;undercut&#8221; and rally off the prior swing low from August 19 (blue horizontal line).<\/p>\n\n\n\n<p>In this case, we would look for the Nasdaq to snap back above the $360-$361 area within the next few days.  <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Trading_Plan\"><\/span>The Trading Plan<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>With both $SPY and $QQQ now trading firmly below their 50-day moving averages, the odds of further downside have increased.  <\/p>\n\n\n\n<p>As such, <strong>cash is king right now!<\/strong><\/p>\n\n\n\n<p>With the <em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">Wagner Daily<\/a><\/em> market timing model now on a confirmed &#8220;sell&#8221; signal, we are protecting profits on the sidelines.<\/p>\n\n\n\n<p>However, we are proactively scanning the markets for the next explosive winners and leading stocks that will once again emerge when stocks find support.<\/p>\n\n\n\n<p>Don&#8217;t miss the next big bull run.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">Subscribe now<\/a> <\/strong>to be instantly notified of our exact entry, stop, and target prices of the best swing trade setups when our market timing model returns to a new buy signal.<\/p>\n\n\n\n<p>In the meantime, <em>remember to always trade what you see&#8211;NOT what you think!<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The benchmark S&amp;P 500 Index has broken its year-long uptrend and 50-day moving average. Will stocks simply rally back to their highs again&#8211;just like every other correction this year? The charts indicate this time may be different. Here&#8217;s why&#8230; In a healthy uptrend, it is normal for a stock market index to occasionally pull back [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-9054","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=9054"}],"version-history":[{"count":13,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9054\/revisions"}],"predecessor-version":[{"id":9100,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9054\/revisions\/9100"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=9054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=9054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=9054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}