As of shortly before 8am ET, US equity markets are poised for a substantial gap up at the open. Dow futures are trading up +584 pts with the S&P 500 up 71 pts and the Nasdaq 100 futures up 175. As this streaming pre-market chart below shows, as of 7:48am ET, the SPY, QQQ & IWM are currently trading around yesterday's regular session highs. In both the QQQ & IWM, those reaction highs were, by no coincidence, the gap resistance that was mentioned here yesterday as the first key overhead resistance that the markets would have to contend with. Following that post, the equity markets (QQQ & IWM) continued higher until stopping cold on those gap back-fills & reversing after failing to surmount those levels.
As a type in pre-market, we are once again testing the top of yesterday's gap. I remain long the Q's and my expectation is that these levels will likely be taken out today, in which case I may add to my long position but until then, resistance is resistance until taken out. Therefore, to add any long exposure here would anything but objective. With volatility spiking lately, we could see some very sharp price swings following the opening bell today so my plan is to widen (or pull) my stops until after the first 30-60 minutes of trading (unless I am convinced to close the position), then continue to hold the longs while manually trailing up my stops, based on how the short-term charts develop throughout the day.
Although I have been calling for a major correction or bear market by year's end, and still believe that the US markets are likely headed lower in the coming months, I think that if the resistance levels shown on this chart are clearly taken out, that would likely spark a rally up to the 197.85ish level on the SPY & possibly the 104 level on the QQQ. Bottom line: at this time I have a bullish bias in the near-term (hours to days) with an intermediate-term bearish bias. Regarding the longer term, most long-term trend indicators remain bullish for now so it's just too early to say with any degree of confidence whether a new bear market (drop of 20%+) is underway or this is simply a long-overdue correction (drop of 10%+) in an ongoing bull market.
Unless/until my read on the charts changes, I will be looking to close my longs soon & begin adding back short exposure for the next leg down. I am also anything but married to the scenario that we will or must take out these resistance levels & continue higher. Should the technicals convince me that the markets are going to continue to slide in the coming days/weeks, I will adjust my positioning accordingly.