What's Hot and What's Not

Support levels held on Friday so the market is most likely to see a couple of flat to positive days as we begin the week. However, there are some negative developments that need to be watched closely as we move forward.

First, Market Support Levels:



The SPY (S&P 500 ETF) created a lower high at $155 last week, but when testing its lower Bollinger band support on Friday, buyers stepped in and kept the index from printing a lower low.

So, thus far we do not have a confirmed downtrend in the broader market. We do have a broader market that has lost momentum, however.

As you can see in the chart above, the SPY broke its uptrend at $154 two weeks ago. Now the Bollinger band is starting to roll over. The threat that this can turn into a downtrend is real. It will be interesting to see what happens when the price returns to $154. Will sellers step back in or will the market shrug off the bad news and climb higher?

The QQQQ

Meanwhile, the QQQQ has maintained its uptrend. Friday's test was successful and the price did not break support.

Even so, there are some warning signs that need to be watched here. Primarily, money flow has diverged negatively as can be seen in the chart below:



So, while the QQQQ continues to make new highs, money flow is now making a series of lower highs and lows. This indicates that smart money has been selling the strength starting at $52.

Keep in mind that while money flow gives us a glimpse at what smart money is up to, it is a poor timing indicator. The price can continue higher, perhaps much higher, while the money flow continues to diverge. When prices do collapse, however, they may do so quickly. Thus it is important to keep very tight stops, focus on buying only support tests and avoid buying rallies. Likewise, hedge your positions.

What's Under Accumulation

Chemicals, Food and Beverage, Energy, Aerospace, and Precious Metals.

What's Under Distribution

Banking, Retail, Home Building, Insurance, Publishers, Autos, Trucking, Airlines, Semiconductors

Summary

Everything that is exposed primarily to the US domestic market and/or has sub prime exposure, is already in a severe downtrend. Anything that has exposure to Asian growth, or that benefits from a weak dollar, continues to be in a strong uptrend.