Market Milestones: 3 Days Down, 9 Days Up

Let’s take a trip down memory lane to 11 days ago when the world was ending. World War III was trending on Twitter while a recession unlike any we have seen was right around the corner. The entire global economy was doomed, and A.I. was a scam and a bubble. In fact, the A.I. bubble was going to make the dot-com bubble look like a friendly little bubble that kids blow in the backyard by comparison. That’s right, the only way to handle the upcoming calamity in the months to come was to dig a bunker in your backyard, or under your parking garage if you live in an apartment, fill said bunker with gold, silver, bitcoin, cash, maybe frankincense, and possibly myrrh to embalm the corpse of your dead stock portfolio, and await your impending doom.

Today, nearly two weeks after the fear, the SPY and the QQQ have recovered. The market has forgotten that the world was supposed to crash and burn, and everyone remembered that the Fed is about to cut rates and will turn on the money printer at even the slightest hint of economic turmoil. Hopefully, your portfolio made it through the harrowing 3-day crash of 2024 and is now looking better than ever. After all, the world ending did produce a few pretty decent sales.

QQQ

It took three days to go down and just nine days to go back up. The V-shaped recovery has become the norm of this bull market and has happened on three of the last four pullbacks since the start of 2023. This V-shaped recovery is happening on inflation and economic data that is just right to ensure a Fed rate cut in September while also hinting at the possibility that a recession could be avoided altogether. Anyone shorting this market got squeezed hard over the last couple of days, which is likely a large factor in the V-shaped recovery. The eight-day, 12% push on QQQ has brought it right into the last real resistance before the QQQ can make a new all-time high. The market should cool off and rest after such a quick bullish move. Dare I be so bold as to say it may even retest before it moves higher. Afterall, the last month of price action has been essentially a straight line down followed by a straight line up, with very little retesting to be had.

Let’s look at some key levels to keep an eye on over the next several weeks. First of all, the trend is bullish right now and will remain that way as long as the SPY holds above the 200DSMA. If the SPY falls below the 200DSMA, something is up, and we all better get out our shovels and start digging. The 100DSMA should hold and act as a strong support for the SPY and the QQQ. If the markets retest those levels, there will be loads of buyers who thought they missed this move showing up to buy that dip. This is why I think the market either retests just shy of the 100DSMA (purple) or drops through it (blue) to either shake out or completely miss buyers. The red line would be the scariest, as all the things we just heard that caused this previous drop would be right back in the headlines in order to cause another large drop to those levels. However, the 200DSMA and the gap fill at $505.89 is going to be a very solid level of support that once again would offer great risk-reward into the all-time highs.

SPY

This entire newsletter might read something like, “the market may dip a little, or dip a little more, or dip a lot, or break down completely, or go straight up.” And yes, that pretty much sums it up—up, down, or sideways, right? However, there are higher and lower probabilities of each of these things happening. The recent move off the low has given us reason to be bullish until proven otherwise. That puts the bear scenarios off the table until key levels are broken—in this case, the 200DSMA. This pushes the edge towards bullish trades and dip-buying, at least for now. Longer-term swing traders and position traders may want to wait for deeper retracements; however, short-term swing traders could play more aggressive dips for quick in-and-out gains.