September 30, 2018
By Mish Schneider
After a week fraught with news and emotions, the market managed to fly above the fray.
Although SPY closed red, it is holding support and still has an underlying upward sloping 50 day moving average.
However, it closed under its fast moving average, which is beginning to show a downward slope.
NASDAQ (QQQ), fared better.
Plus, QQQs had an inside day, which means that it traded within the trading range from the day before.
QQQs also held the fast moving average, which is better than what the SPY did.
The index, though, that could send the flight into turbulence is the Russell 2000 (IWM).
Despite the green close on Friday, it traded below the 50 DMA.
Furthermore, the fast moving average (negatively sloped) is about to cross below the 50 DMA.
We often find that crossover a reliable precursor to more downside.
All last week, we also focused on the dollar, interest rates, commodities (especially oil) and the transportation sector.
If we are passengers on this flight, how will we know if we should stay strapped in our seats, or are free to roam about the cabin?
Beginning with the US dollar, it firmed even more.
The interest rates also firmed, but have not broken critical support.
Logically, we figure that if the dollar and the yields rise together, at the very least, the lagging financial sector should kick into gear.
However, the fins have not participated.
Regional Banks, KRE, are in a distribution phase. Plus, KRE closed below the 50-week MA for the first time in a year.
Without the confirmation of having the financial sector in the game, it is difficult to say with authority why the aberration between rates and the banks exists. Typically, banks like higher rates.
Perhaps the aberration exists because the oil prices keep rising.
On top of that, wages rose but rose less than expected. It’s getting expensive to fill up your car. It’s getting expensive to ship, fly, and drive.
That hurts consumers.
Are the fins behaving like the flight attendant who tells the passengers to stay seated?
Then there is the transportation (IYT) sector, which includes trains, planes and automobiles.
In a bullish phase, the trading range to watch coming into this week is 202-206.
On the Daily chart, IYT could be developing a head and shoulders top. Under 202, I would not be surprised to see the oxygen mask automatically appear for traders.
As we head into the start of the 4th quarter, our focus is unchanged.
Will fins turn around?
Will Transportation hold?
Will the rates continue to rise? What about the dollar?
How much more upside does oil have?
Can the small caps find new buyers?
How long can the market hold at altitude?
Any of these factors can blow out an engine.
Or, they can help the market’s autopilot continue to navigate above the clouds.
S&P 500 (SPY) 291.00 is the fast MA and now pivotal.
Russell 2000 (IWM) 169.22 the pivotal 50 DMA could not clear. A weekly close under 167.25 bad.
Dow (DIA) Topping pattern with 263.98 support
Nasdaq (QQQ) Inside day. 183.40 pivotal support which if fails along with the other indices weak, trouble. For now, 187.25 resistance
KRE (Regional Banks) Under the 50-week MA, first time since a year ago
SMH (Semiconductors) Watch this too. Keeps bouncing, but if that stops, the weekly MA at 104 area is key
IYT (Transportation) 206.80 fast MA resistance. A move under 202 or the 50 DMA not great
IBB (Biotechnology) 120 support to hold
XRT (Retail) If this cannot get back over 51.40, The weekly MA comes up next or around 50.15
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