Stocks quoted in this article:
Markets had a rough go of it last week: the S&P 500 Index (SPX) and the Russell 2000 (RUT) both broke down technically, breaching their 200-day moving averages and trading below those key trendlines for a couple of days. Since then, however, the market has recovered, and these indexes are now trading back above their respective moving averages. On Monday, I wrote a blog post about the PowerShares QQQ Trust (QQQ), the tracking ETF for the Nasdaq-100 Index (NDX), and the importance of the 60 level for the entire market. While the market was breaking down, tech weathered the storm and held above the important psychological level.
In my opinion, while yesterday's intraday pullback was scary, it was a necessary consolidation move after Wednesday's massive rally (the biggest up day of 2012). Going forward, a long index position creates a great risk/reward opportunity, using a break back below the 200-day moving average as a stop. A second test/breach of this trendline should signal that markets are heading lower.