How to Play 3 Major ETFs Into the Fourth Quarter
Let's take a close look at how the charts are setting up for the S&P 500, Nasdaq 100 and Russell 2000 exchange-traded funds.
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So, the last two days of the third quarter didn’t play out quite as I anticipated, but equities managed to hold. The first few days of the fourth quarter have been a bit of a rough start, but we are contending with war in the Middle East, the fallout from a devasting hurricane in the southeastern United States, and the beginning of a port strike in the U.S. as well.
The strike is coming to an end. The hurricane's wrath will be felt for quite some time, but the weather has passed, and the rebuilding has begun. The conflict in the Middle East remains a major unknown; however, any lost oil production can be covered by alternative suppliers.
Come Monday, investors will likely return focus to economic numbers and the election. Maybe we can even remember there was a 50 basis point rate cut last month.
Heading into the fourth quarter, I want to look at some major equity ETFs.
The SPDR S&P 500 ETF SPY continues to demonstrate strength. Lower left to upper right is the dream price action for a buy-and-hold investor. The ETF has been hanging around the 10-day exponential moving average (EMA) and has multiple levels of support between $555 and $565. Although we’ve stalled near highs, I won’t be concerned about the SPY unless it closes under $555.
The Invesco QQQ Trust QQQ failed to recapture its summer high on the recent rally. It remains in a pattern of strength but is hugging the 21-day EMA with $465 as the next big level of support. Like the SPY, there is no reason to become bearish until the trend changes. A close below $465 would move me to the sidelines.
The iShares Russell 2000 ETF IWM is more convoluted. Although small-caps have performed well since the sharp August selloff, IWM failed to make a new high on the recent market rally. The price action isn’t as clean, so I pulled in Fibonacci levels using the recent highs and lows.
IWM closed at the 61.8% level Thursday, but my eyes are on the $208 level. A close under there would have me very worried about small-caps. Unless we break below that level or close over $224, I remain neutral on IWM.
At the time of publication, Byrne had no positions in any securities mentioned.
