When looking at the chart of the Nasdaq and the S&P 500 we see a couple of things to be concerned about.
For starters, on both of the charts we can see heavy volume on the down days. Healthy pullbacks are normally on lighter volume not heavier Friday was especially bad. Monday we saw a bounce and although we found support back above the short term 21 day moving avererage, we could not pierce the top of Fridays range. The volume on todays up move was on lighter volume on the S&p 500 but we did see heavier volume on the Nasdaq which was a positive.
The Nasdaq does have the potential to lead us higher but we need to see a couple things to keep this market healthy.
Like we mentioned any move higher needs to be on higher volume and any pullback should be on lighter volume. We would also be happy with some sideways, consolidation movement. This would allow the charts to reset and give us a stable foundation for some high probability stock setups. There are 2 more options for the market at this point. We can keep getting more extended to the upside without a proper rest which will eventually result in a bubble like collapse or we pullback now.
As drawn out on the charts there are currently a couple of support levels around 5-10% lower. The support levels on the S&P 500 aren't quite as far but if you look at the small cap and mid cap indices such as the S&P 400 and Russell 2000
Disclosure: no positions