If Nasdaq 100 ETF ($QQQ) follows through on yesterday's bullish reversal, then the next logical area of resistance in just above the 50-day MA, in the $88.50 - $90 area. How the price action reacts to this level will be key.



The Nasdaq 100 was helped out by a big time yesterday by a breakout in $AAPL, as it followed through on a bullish earnings gap up with very strong price and volume action. $APPL is 20% of the weighting in the Nasdaq 100, so as long as this beast of a stock continues to press higher it will most likely drag $QQQ along.



Although we just established a bearish position in the inverted UltraShort QQQ ($QID), Monday's bullish reversal action in $QQQ is a clear warning sign to the shorts. We are going with a very tight stop, as we would rather limit the losses with our current entry and look for a lower-risk entry point to develop on a potential bounce above the 50-day MA.

The S&P 500's reversal was impressive, as it managed to close back above the 20-day EMA and 50-day MA after a terrible start. If the S&P 500 forms a tight inside day on Tuesday, then we could possibly see the price action pick up towards the end of the week, with a potential breakout to new highs soon thereafter.



Although we could see a breakout emerge in the S&P 500, if we take a step back to analyze leadership we find utilities, REITs, energy, and consumer staples at the top. These groups are defensive and their leadership suggests that the market rally is running on fumes. The Nasdaq is also struggling, as most leadership stocks in the Nasdaq have been hit hard and will need several weeks of basing action to become healthy once again. For the time being, it may be best to lay low with regard to new positions.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.