How we know big tech is at a crossroads

In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, explains how big tech may be poised for a big drop.

On Tuesday, the Nasdaq 100 (represented by the Invesco QQQ Trust [QQQ]), the iShares Russell 2000 ETF [IWM], and SPDR S&P 500 ETF [SPY] gapped lower, followed by a rally.

One of the most important indices to gap lower was the tech-heavy QQQ index.

This is important because big tech companies were the first to lead the rally in the wake of the pandemic back in March last year.

With tech leading the charge higher, it has also been a cause for worry if it were to weaken.

If so, it could be signalling that overall market strength is lessening, or fear from other things like inflation is gaining weight.

With that said, the QQQ also broke an important support area created not only by the 50-day moving average (DMA) but also from consolidation in price action going back to this March...

Similarly, the small-cap Russell 2000 index broke its 50-DMA.

However, IWM’s price action is much sloppier, with it repeatedly trading around the 50-DMA for over a month.

Additionally, the SPY and the SPDR Dow Jones Industrial Average ETF [DIA] are holding a bullish phase with prices trading over their 50-DMA.

Therefore, the QQQ is key as it is sitting in a very pivotal area.

If it can clear back over its 50-DMA at $325.90 and hold, this will look good for the coming week.

On the other hand, if the QQQ can’t clear back over the 50-DMA, stay cautious as fear could trigger a greater selloff.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.