September 1, 2020
By Geoff Bysshe
Today the SPY ended its best August performance since 1986 with a market message that is well worth paying attention to as soon as tomorrow and well into September.
Fortunately for me (and you), a lot of pieces of today's market's and Modern Family's messages came together from what I've discussed over the last week in this commentary and our Market Outlook blog.
The timing is perfect. I can pull it all together right now, and then Mish will be back to writing this commentary tomorrow with a clean slate and a new month.
The SPY's 5-day up/down volume turned lower as illustrated in the chart below.
This is not a long-term negative, but it is a reason to at least expect a pause in the SPY, and as you can see from the other measures in this chart, this is not a very overbought level, so there isn't a compelling reason to believe that this is big inflection point.
Important Note: the NASDAQ equivalent does NOT have the same pattern.
In addition, the SPY, IWM, and DIA all closed down on a Monday. That's unusual.
As I explained yesterday, since the March lows, stocks have closed up on Mondays 70% to over 80% of the time depending on the index, so when they don't, something may be 'different'.
Even more noteworthy, the DIA and IWM closed under their prior day's low.
This pattern is particularly significant when it's a 'first' in some time. This is the first time for DIA since it began its run-up in late July. IWM had this pattern for the first time since July on August 18th and it hasn't been able to break that day's high since.
As a result, it will be important to cautious if there is a 30-minute Opening Range breakdown tomorrow below these lows as that would confirm the beginning of a down move in these two indexes.
If you're looking for a trade from this, here's one idea...
The VXX continues to be strong regardless of the SPY's strength. The two can not trend the same way for too long.
Therefore, if the SPY falls, the VXX looks ready to explode higher, and if the SPY continues up, the VXX appears to be nervous enough to hold firm.
It sounds like a good time to be long the VXX rather than short the SPY.
I'll be looking for a VXX OR breakout over its prior day's high. Even if you're not going to trade it, watch out for the VXX trending higher as it will likely point to a muted potential for the SPY.
However, all the news is not bearish.
The markets rotated…
Yes, SMH lagged as feared, XRT broke down as feared, IYT reversed at its key breakout level which is not good if it moves lower, but…
IBB finally broke out of its consolidation to the upside! This isn't typically where investors move to if there's a fear of a big move down. As I pointed numerous times, this is a big weekly level.
Additionally, on their split day, AAPL and TSLA both broke out of their Opening Ranges (OR) to the upside and ran, helping the QQQ still close up over 1%.
I'm going to have a line under yesterday's lows in AAPL and TSLA. It could prove to be a pivotal level if we trade below it too soon.
Best wishes for your trading,
(Geoff is filling for Mish until August 31st)
S&P 500 (SPY) Traded from its HOD to LOD in the last 10 min. making the daily chart look worse than intra-day action suggested. Consolidation day. 340 then 335 are important support.
Russell 2000 (IWM) Closed under 10 DMA and PDL. Needs to close over 157.50 to look good. Support at 155 area, then swing low is 153.60
Dow (DIA) Closed under PDL. Resistance at 290. Support at 280.
Nasdaq (QQQ) New high. Support at 292.50 area then 285 is 10 DMA
TLT (iShares 20+ Year Treasuries) 163.30 is strong resistance. Support at 158.50 then the 200 DMA at 155.80.
Every day you'll be prepared to trade with: