This morning SPY and QQQ gapped below their 200-day SMAs. Whenever this happens, we tend to see strong continuation in the direction of the gap. Looking at history, the only way to avoid that follow-through is to quickly reclaim the average within the next day or two.
Watch SPY and QQQ very closely here. If we see downside continuation followed by a retest and rejection from below the 200-day SMA, that would be a major warning sign that things are turning more vertical to the downside, and the B wave I’ve been watching becomes much less likely.
On the other hand, if we start closing back above or even gap back above the 200-day SMA tomorrow or early next week, that would be a strong signal that the B wave is underway. Risk is still elevated at these levels and with these patterns, but that scenario could open the door for a bullish move.
