As Fear Grips The Market, Here's Why 3 Bellwether ETFs Look Set To Bounce

The SPDR S&P 500 SPY continued to plummet on Monday, falling about 3.7% lower at one point by early afternoon. Related ETFs, the SPDR Dow Jones Industrial Average ETF DIA and the Invesco QQQ Trust, Series 1 QQQ were unable to escape the bloodbath, losing about 2.9% and 4.5%, respectively.

Fear has entered into the markets in the lead up to the Federal Reserve’s monthly meeting on Wednesday, where Fed Chairman Jerome Powell is expected to reveal the timetable for the central bank’s plan to hike interest rates over the course of 2022.

Geopolitical risk has also hit the nerves of investors as it appears increasingly likely Russia will invade Ukraine. On Sunday, the U.S. State Department announced it was ordering the family members of its diplomats to depart the U.S. Embassy in Kyiv, signaling conflict in the area may be expected soon.

Although the lower prices across the main indices are a reflection of bearish news, the drops were also largely expected from a technical standpoint because during Friday’s trading session the SPY lost support at the 200-day simple moving average (SMA), which through the market into a bear cycle.

See Also: 'Winter Is Here For Stocks': Why This Analyst Recommends Defensives

A bounce for all three of the ETFs is likely to come, however, due to signals that are flashing on the SPY, QQQ and DIA charts.

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The SPY Chart: After hitting a low of $420.76 at 12;15 p.m. EST on Monday the SPY began to bounce up from that level as bulls bought the dip.

• A much larger bounce may eventually come because the SPY’s relative strength index is at about 20%. When a stock or ETF’s RSI drops below the 30% level it becomes oversold, which can be a buy signal for technical traders.
• The SPY has been trading in a downtrend since printing its Jan. 4 all-time high of $479.98 but hasn’t printed a lower high since Jan. 12. Eventually the ETF will have to bounce up to continue in the downward pattern.
• Traders can watch for the SPY to bounce up to the 200-day SMA and whether or not the ETF can regain the level will determine the subsequent direction. If the SPY is unable to regain the level it may fall down to backtest the important psychological level at $400.
• There is resistance above at $425.46 and $433.69 and support below at $420.76 and $414.70.

The QQQ Chart: The QQQ lost support at the 200-day SMA on Thursday, which indicated lower prices were likely to follow. Like with the SPY, the area will now act as resistance.

• Also like the SPY, the QQQ will eventually need to print a lower high in order to continue in its downtrend.
• The QQQ’s RSI is in oversold territory, measuring in at about 24%, which like the SPY indicates a bounce is likely in the cards.
• The QQQ has resistance above at $342.15 and $352.04 and support below at $337.27 and $330.55.

The DIA Chart: The DIA Chart has shaped up almost identically to the SPY’s since the DIA reached its Jan. 5 all-time high of $369.50.

• The DIA’s RSI, like the SPY and QQQ’s, is oversold, measuring in at about 21%.
• Like the QQQ, the DIA lost support at the 200-day SMA on Thursday, which indicates the ETF has entered into a bear market.
• The DIA will eventually need to bounce up to print a lower high on the daily chart.
• There is resistance above at $337.38 and $341.81 and support below at $332.68 and $328.90.