With strong overhead resistance and multiple negative factors ahead, we should plan for weakness. The Dow has strong resistance at 18,000, S&P-500 at 2100-2115 and Nasdaq 4,900 we should consider a possible trend change.
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QQQ - Nasdaq 100 ETF - ETF Profile
The Dow has struggled with the 18,000 level since last November. Eventually there will be a breakout but I strongly doubt it will be during the summer doldrums between July 4th and Labor Day. The volume will be to low and other factors are weighing on the index. The 30 Dow stocks are all exposed to the strong dollar and falling pound as a result of the Brexit. I would be very surprised if less than two-thirds of the Dow stocks did not warn for Q3 on the strong dollar problem. With Q2 earnings starting on July 11th i would expect some investors to begin moving to the sidelines to avoid the rush.
The S&P 500 has solid resistance from 2,100 to 2,115. It has failed at those levels on every attempt since August of last year. With earnings expected to be weak, economics weak and Europe weak, I would expect the S&P to fail at those levels again.
The Nasdaq has strong resistance at 4,900 and 4968. These are lower highs from the peak last November. The biotech sector is still weak and Merrill Lynch just downgraded the semiconductors. Oil prices are likely to remain around $50 for the rest of the year and that means the bloom is fading on the energy stocks.
The Nasdaq 100 ETF (QQQ) is approaching solid resistance at $110. I actually doubt it will get there but that appears to be the target. If the QQQ reaches that level I would recommend shorting the ETF. I know that is a big ticket item for Premier Investor readers but there are no low dollar index ETFs that will accomplish the same thing. I am going to recommend a long put in place of the actual short.
I would like to enter the position at $110 but that would take about a 200 point gain on the Nasdaq 100 ($NDX) and I seriously doubt that will happen.
Since we cannot count on that $110 level being reached I am going to recommend buying the put with a trade at $106.85. If the index does go higher then we can target the $110 level as well.
With a QQQ trade at $106.85
Buy August $106 put, currently $2.05. No initial stop loss.
With a QQQ trade at $109.50
Buy August $108 put, estimated to be $2.05. No initial stop loss.