How Can You Trade A Known Unknown?

August 12, 2019

Mish's Daily

By Geoff Bysshe

A “known unknown” means that we know there is something that we do not know. They can be good or bad.

The markets have plenty of them, and right now I’d use this to describe the point at the protests in Hong Kong become the catalyst for the U.S. stock market to suffer steep declines.

In writing the Market Outlook this weekend, I spent some time thinking about how to see this known unknown coming. Now I have an indicator, but…

First, let’s look at what we know.

All but one of the Modern Family members closed lower than their prior day’s low along with the market indexes.

This is bearish, and if you trade the shorter-term swings, this should raise your attention on today’s lows as important levels for the markets to hold tomorrow.

IBB only managed to hold up due to an unusually large move in AMGN. So it doesn’t lend much confidence to the bulls resolve.

Also noteworthy is XRT. Today it broke down below its key level of its June lows. Last week I mentioned this a negative leading indicator to watch out for.

If it accelerates lower, it could spark the same reaction in the general market.

Now for the known unknown. Hong Kong.

First, you can never know for sure when a known unknown will turn into a catalyst. If you had a perfect indicator it would no longer be an unknown.

However, you can be prepared to see it coming.

For Hong Kong, you can start with the Hong Kong stock market ETF (EWH). If it’s decline accelerates, then the risks of the U.S. markets moving lower will be higher.

For example, today EWH gapped below last week’s low, and the U.S. market was under pressure all day with the protests in the headline.

Today’s gap lower in EWH didn’t accelerate lower. In fact, bottomed around 11:30.

I can’t know where the inflection point will be, but if it’s accelerating to the downside as the US markets hit last week’s lows, it will be very concerning.

To be clear, I’m not predicting that we’re about to hit last week’s lows, I just like to know what to look out for ahead of time.

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ETF Levels:

Subscribers: Pivots negative down in all

S&P 500 (SPY) Support at Monday’s low area, 287. Big support area is 280 to 277.70 (the 200 DMA). Resistance at 290 and 293.60.

Russell 2000 (IWM) Support at Monday’s low area, 148.33. Next big support is 145.30. Resistance at 50 DMA 153.40

Dow (DIA) Support at Monday’s low area, 258.56. Next support levels are 252.50 and 247. Resistance around 264.50.

Nasdaq (QQQ) Support at Monday’s low area, 183.50. Swing low is at a trendline from the December 2018 low. Resistance at 186 and 190.70.

KRE (Regional Banks) Support around 50, then at swing low, 49.40 and 49.00. Big resistance at 51.70, then at 52 then 50 DMA around 53.

SMH (Semiconductors) Support at Monday’s low area, 109.50, then 108. Resistance 113.50, then 116.

IYT (Transportation) Needs to hold 179.25. Resistance at 186 then 191.

IBB (Biotechnology) Held up well (thanks to AMGN). Support at 104 which has been pivotal since April. Looks interesting if it can close over 107.

XRT (Retail) Big down day. Closed below June low. Next big support area is Dec. 2018 low at 38 area. Major resistance around 41.50.


Bye for now,

Geoff Bysshe

Geoff is filling in for Mish until August 24th.

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