Metrics of the New Normal

May 18, 2017

Mish's Daily

By Geoff Bysshe

blankAnyone curious about what caused the 370-point drop this week can look no further than the chart above. We are not surprised. Over the past several months the discord in the Modern family that started as minor bickering has broken out into a heated dispute. Equities are not happy when most family members are arguing and in depressed market phases.

The cause of the bickering stems from the debate on whether Trump will be able to execute or not. Obviously if he is impeached those best laid plans will never materialize. Today’s bounce after yesterday’s meltdown did little to calm things down among family members. Hence we are feeling defensive.

Here is the hard evidence:

  1. Although the SPY regained the 50-day moving average by just a few ticks it still has a classic double top in place.
  2. The IWM entered a Warning Phase yesterday and confirmed today.
  3. Four out of the six members of the modern family remain in weakened phases and retail is outright bearish.
  4. Even with the QQQ ‘s bouncing up almost 1% today, it still closed under the 10-day MA, and the New High/Low indicator continued to deteriorate rapidly. You can see the chart here:
  5. KRE and IYT, leading sectors right after the election are down YTD!
  6. The TLT (US Bonds) continue to improve against Junk debt a risk off indication.

Some of the bearish patterns as outlined above have been showing for an awhile but the catalyst to the big decline was that big jump in the impeachment odds. Once that subsided today, equites rallied but not with great conviction.

One must stay flexible so, for getting bullish, I’ll wait for a positive pattern such as IBB back above its 50-day MA, and either IWM or the Dow reclaiming their 50-day MA’s.

S&P 500 (SPY) Classic looking double top.  Good news it closed above the 50 DMA which need to hold. Below 235.40 watch out below with support at 233.50 and then 225.

Russell 2000 (IWM) Confirmed phase change to warning, Will the 6-month calendar range low hold at 133.60? Close Above 138 would put things in a positive perspective

Dow (DIA) Closed under 50 DMA and confirmed warning phase, should find support around 204. If it breaks 204 the next support level is 194 on monthly charts

Nasdaq (QQQ) Leader of the pack but still needs to reclaim 10 DMA at 138.10. Important support at 135.80 and if broken look for next support at 133.70

KRE (Regional Banks) Inside day pattern and needs to hold 51.50 as it looks heavy. Big support at 46.50.  53 takes out inside day pattern to upside but lots of overhead at 54-55.

SMH (Semiconductors) Leader of the pack, nice pop back above 10 DMA. Needs to hold 81.44 and a great tell for market, if it can’t. Support at 79.60.

IYT (Transportation) 200 DMA just below todays close at 157.30. This area needs to hold and picture not pretty if this breaks down any further. This once leading sector is now down 2.4% YTD

IBB (Biotechnology) This is a new potential sector leader but needs to clear above 293.35 to confirm that and certainly hold 200 DMA at 284 or all bets are off

XRT (Retail) Yikes… this sector is hanging on for dear life at pre- election levels… needs a flush and reversal pattern to think about any long play. Or a move above 43.  Long term pattern on weekly pattern looks heavy with support at 38 at 80 month moving average.

IYR (Real Estate) Still Stuck between 77 and 79 and can follow break-out either way with tight stops

GLD (Gold Trust) Needs to get over 120 to look good and confirm phase change. Breakdown under today’s low at 118.50 could mean a lot more pressure to downside to follow.

SLV (Silver) Under pressure and murky. Avoid for now and prefer to buy on meaningful strength

GDX (Gold Miners) wait for a break over the 200 DMA and 6-month calendar range of 23.90 to get long

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