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SPY and QQQ tested their 50-day moving average. The initial bounce was faded near their declining 20-day EMA. Then, both came back to their 50dma again on Friday. In the meantime, many of the momentum favorites took quick a beating last week – OSTK, W, DOCU, CVNA, etc. Most major earnings reports were heavily sold or faded – PTON, LULU, CHWY, ORCL. Small caps broke below their 50-day moving average led by weakness in financials and energy. The tape has changed.
The only thing that is still holding the indexes from breaking down is the constant sector rotation. Homebuilders showed notable relative strength on Friday as the 30-year fixed mortgage rate reached new all-time lows of 2.86%. There were also quite a few consumer cyclical stocks that broke out or are setting up for a potential breakout – CROX, NKE, UA. Can rotation save the day again? It’s quite possible but for the first time in a while, there are short setups that are looking more appealing than long setups. Some momentum leaders seem to be forming topping formations and setting up for potential breakdowns.
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