The Long and Short of It
The Next Days Will Be Telling
After an extremely weak close on Wednesday, SPY and QQQ both gapped below their 200-day SMA. That is a big deal. This marks the first interaction with this key average since May 12th, when we gapped strongly above it.
SPY Daily Chart
Looking at history, what happens next typically falls into one of two paths (all charts are hyperlinked below for more in-depth study).
Option 1: Breakdown and acceleration lower
If we break below Thursday’s low in the next few days, the odds favor a fast move lower.
March 10th, 2025: SPY gapped below the 200-day SMA, drifted lower for a few days, then retested the average from below, rejected hard, and plummeted 16% lower in just 9 days.
April 6th, 2022: SPY gapped below the 200-day SMA, moved sideways beneath the average for three days, and then gapped down again, sparking a full-blown bear market that lasted another 190 days and took price 22% lower.
July 7th, 2015: A bearish gap below the 200-day SMA kicked off an 11% drop in just 3 days. The consolidation looks very similar to today. However, as I’ve discussed in “The Last Bounce,” I still believe we are tracking closer to the purple arrow in the structure.
June 23rd, 2011: 2011 is another key analog I have been watching and it kicked off its final drop with a gap below the 200-day SMA, triggered major selling. That gap occurred on the second touch of the average, while we are still on the first, which is why I believe we are at the purple arrow as opposed to the red. However, the next few days will be critical in determining where we are.
May 20th, 2010: The market gapped lower below the 200-day SMA, failed to reclaim the average, rejected on the retest, and ultimately made lower lows 42 days later after a 17% decline.
SPY Chart March 10th 2025
Option 2: Quick reclaim and reversal higher
If we reclaim the 200-day SMA within the next 1 to 2 days and hold it, the odds shift toward a short-term low being in place and the start of the B wave higher.
May 31st, 2019: A bearish gap down below the 200-day SMA after SPY had already seen a decent selloff. It reclaimed the 200-day SMA within two days, briefly closing below the initial candle before gapping back above the 200-day SMA, which led to a strong move higher.
March 8th, 2019: A bearish gap below the 200-day SMA after four consecutive bear candles. It formed a bullish candle that closed just under the 200-day SMA, just like we did on Thursday, and then gapped up the next day, leading to a sharp upside reversal.
December 3rd, 2018: A strong gap above the 200-day SMA that reversed the very next day, moving sharply in the opposite direction of the gap.
November 7th, 2018: A similar gap above the average that failed within 2 days and continued lower, in the opposite direction of the gap.
June 27th, 2016: The market gapped below the 200-day SMA and closed with a bear candle. It then gapped up the next day reclaiming the average and launching higher in a V-shaped recovery.
SPY Chart May 31st and March 8th 2019
That covers the majority of the key gap scenarios around the 200-day SMA in SPY’s history. Knowing that Option A is a very real possibility means caution is warranted here. Picking up some puts or tightening trailing stops makes sense, especially if we do not reclaim the 200-day SMA by Monday at the latest. The good news is that we should know very soon which scenario is playing out.
Beyond SPY & QQQ
If we look outside of SPY and QQQ charts, we can find a lot of names that are pretty oversold and finding support at key levels. Many of the Trillion Dollar Titans are reaching levels where we normally see bounces. We are also seeing some areas of relative strength, like SMH, which I reviewed in the Tuesday Top Trade video, putting in higher lows. Seeing some markets and sectors diverge in a bullish direction is a good sign that a bounce may be coming. However, if SMH takes out Thursday’s candle and loses support at $372, that will be a big deal, and the selling from there will likely be swift and brutal, pushing it down into its 200-day SMA.
SMH Daily Chart
DIA has also dropped almost vertically over the past 37 days. I have to say I called the top perfectly in my Divergence at the Top newsletter. It could push a bit lower, perhaps into $451 at the prior ATH, but I think at least some kind of bounce is due, even if it results in a lower high, as I believe it likely will. If it breaks down further, the next major support will be at the 100-week SMA near $437, nearly 14% off of the all time highs.
DIA Daily Chart
Speaking of calling tops, another one I nailed was in SLV back on January 29th in the Hi-Yo Silver, Away newsletter. After the initial drop, I overlaid the 2011 bars pattern I used to call the top, and it has tracked nearly every pivot for over a month.
While I haven’t traded it since shorting the top and taking a quick swing long shortly after, anyone following that 2011 bars pattern has had multiple opportunities to catch pivots and swings in SLV. The pattern is now suggesting that we either put in a low on Thursday or will do so within the next few days before a larger B wave bounce begins.
SLV 4 Hour Chart
Even though my SLV chart suggests a low is here or very close, GLD seems to have a bit more downside based on my Elliott Wave analysis. I believe we are in a C wave, with at least one more leg lower before completion. If XAUUSD can drop back down into the $4,400-$4,100 the risk/reward should get pretty nice once again for a bullish move.
Across sectors, we are seeing key levels get tested everywhere. IYT (Transportation) is at the 200-day SMA. XLF (Financials) is at/just under the 100-week SMA. XLB (Materials), XLI (Industrials), and XLP (Consumer Staples) are all back at their 100-day SMAs.
Meanwhile, the mega caps are mostly sitting on critical levels as well. NVDA and AAPL are right on their 200-day SMAs. GOOGL is just above key support at $295 while it hugs its 100-day SMA and won’t let go. MSFT is approaching major support at its 200-week SMA. AMZN is sitting on its 100-week SMA, and TSM is bouncing just above its 100-day SMA.
MSFT Daily Chart
The Long and the Short of It
The entire market looks like it is sitting on the edge of a cliff, either ready to tip over into a free fall or give us one more bounce higher, even if that bounce ultimately results in a lower high.
Putting everything together, the probabilities and the patterns suggest that a low is either in or very close, with a bounce likely over the coming weeks or months. My downside levels were hit when both SPY and QQQ tagged the 200-day SMA, which should mark the end of this A wave lower. SPY also put in a slight RSI bullish divergence at the lows, which adds to the case.
However, this is a critical moment. If we fail to reclaim the 200-day SMA in the next few days and instead break below Thursday’s low, history suggests we should see a fast, violent move lower.
Thanks for the update!