October 23, 2016
By Geoff Bysshe
In Mish’s last report she highlighted the equal and opposite forces working among market sectors which has resulted in a market becoming so tightly consolidated that it has not closed more than 1% outside of the 1-day range set over 6 weeks ago (Sept. 9th for anyone thinking that can’t be true)!
In addition to the markets’ cross currents created by sectors, there are multiple trends within each market, sector and stocks.
Think of any market in the same way you would look at the ocean as having waves, tides, and the dreaded ‘rip tide’ currents which show up on the shore. They vary in degree of intensity and their visibility is based on the weather.
So while the market appears to be simply ebbing and flowing like waves on the shore, there are a few rip tides worthy of your attention right now.
Unlike the ocean, this market has clearly identified the location of the dangerous rip tide in both the SPY and the IWM. In short, these critical levels are the lows of last week.
If last week’s lows are broken, especially on a closing basis, the savvy trader should swim with the current to survive – out to sea, rather than fight it.
For video representation of the importance of this please refer to this week’s Market Outlook where you can see a visual explanation of the significance of these breaking points (here).
However…. It’s Not All Bearish!
If you’re the trader who likes to surf, then you know that the surf that precedes a storm provides some to the best opportunities to catch some nice waves!
And if a storm in the market is a trend (up or down) then experienced surfers can see it coming based on the churning nature of the markets.
It would be easy to say that the markets are waiting for the presidential elections, but the markets tend to move before the catalyst when the catalyst is known, and the election at this point is not being viewed as a potential “surprise” by the market.
So the Modern Family leaders should continue to lead and the laggards should continue to lag if the consolidation of the market breaks to the upside.
However, if the market gets caught in the rip-tide…
The baby, as the saying goes, will most likely get thrown out with the bath water! So make sure you know where that rip tide is (explained above), and where the key levels are in each sector (below).
S&P 500 (SPY): 215 gets the bulls going. Under 212 the bears take control and under 211 extreme danger sets in.
Russell 2000 (IWM): 120 pivotal with 122 good place to clear/close above
Dow (DIA): 180 do or die support area and 182.50 resistance to clear
Nasdaq (QQQ): 118.50 puts the bulls in control. Under 117 extreme danger sets in, and 116 is the last hope for the bulls.
KRE (Regional Banks): The one to watch for bullish leadership. Over 42.35 puts the bulls in control.
SMH (Semiconductors): This is the leader but be sure to watch the Market Outlook video – if this breaks it’s 50-day MA it’s bad news for the market. Until then it’s a bull market leader and a move over 68.50 could lead the market higher.
IYT (Transportation): Friday bounced off the 50 DMA nicely but needs to break out over 145.50 to move higher.
IBB (Biotechnology): 264 key weekly moving average
XRT (Retail): Refuses to breakdown, but still under the 200 DMA
IYR (Real Estate): 78.70 pivotal to move higher
GLD (Gold Trust): support at 120.50. If breaks, see more downside
SLV (Silver): 16.40 support
GDX (Gold Miners): Inside day. Should now hold around 24.50 and clear 25.10
USO (US Oil Fund): 11.50 pivotal. 11.25 and 10.80 major support
TLT (iShares 20+ Year Treasuries): Inside day. Could be a bear flag forming.
Every day you'll be prepared to trade with: