October 22, 2018
By Mish Schneider
Over the weekend, I am certain you read reports that said the market is at a tradeable bottom and others that said the market is going to continue to crash.
No doubt, the contrasting opinions (and that’s really all they are) are enough to make your head spin!
Are we like the man with the cigar, promising to not be fooled again?
Is that even possible?
One way to help yourself overcome feeling “fooled” is to look out at multiple timeframes.
Over the weekend, I showed you a chart of Semiconductors on a monthly timeframe.
Earlier last week, I showed you monthly chart for the Russell 2000.
Both showed support at around 93.88 and 150, respectively.
Are these charts a guarantee you won’t be fooled again?
Nothing (except death and taxes) are a guarantee.
But what watching these key weekly and monthly charts did for you today, was tell you not to get short near the support levels.
I specifically chose the Russell 2000 IWM and Semiconductors SMH because both were basically first in showing us rather than fooling us in thinking that the market would continue rise.
Remember, when the Dow was making new highs in early October, both IWM and SMH went into a warning phases.
Therefore, it should not be a surprise, that both crashed to test their monthly moving averages.
Nor should it be a surprise that SMH, (which really was the first sector showing stress) closed green today.
There is no coincidence that the economic Modern Family has kept us from feeling foolish.
Looking at the other members, Transportation and Retail both closed green.
While Biotechnology and Regional Banks sunk further.
What does that mean? Higher rates are still impacting homebuyers and borrowers.
In Biotech, as I have mentioned before, we see the public typically late to the party.
They way too often buy at the top and sell at the low.
Now, all that is well and good. By now you may be thinking, well if nobody is bigger or smarter than the market, why should we listen to you?
Think of me as the Family’s spokesperson.
What today’s action tells us is that IWM and SMH got a bit oversold, hence the bounce. And IWM still closed red.
Regional Banks are extremely oversold right now.
Retail XRT, had an inside day and is sitting under the 50-WMA at 47.18.
Biotech represents the negative sentiment that should have happened weeks ago.
If you put that all together, the biggest tells will continue to be IWM, SMH and IYT (all still below their 50-WMAs). In fact, everyone in the Family is under their 50-WMAs.
Now that IWM, SMH and IYT worked off some of the shorter-term oversold conditions, today’ bounce, without follow through tomorrow, could be the next short opportunity.
However, should SMH particularly because of its inside day, clear over Friday’s high 97.69, we can expect more rally.
Will that rally continue, doubtful.
Because SMH would have to clear back over 104, or its 50-WMA.
Now if tomorrow SMH breaks under Friday’s low 94.68, the monthly support at 93.88 could hold. So, I’d be a bit patient.
Plus we are still waiting to see if the SPY, DIA and QQQ can continue to hold their 50-WMAs.
Therefore, if SMH does not hold, do not try to pick a bottom. It will be the final evidence we need that the last 2 years of the bull market really is over.
S&P 500 (SPY) 274.56 is the 50-WMA. Confirmed distribution phase which makes 276.50 the 200 DMA pivotal.
Russell 2000 (IWM) 151.88 low from 10/12, under there could see 150 fast-what happens from there is noteworthy. And if IWM can clear over 157 could be back in the game.
Dow (DIA) 251.55 the 200 DMA and 249.85 crucial support. Over 256.50 better
Nasdaq (QQQ) 171.97 the 200 DMA. 169.17 crucial support and if can clear over 177, better
KRE (Regional Banks) This has broken the 23-month MA-been a lead indicator thus far-so we shall see
SMH (Semiconductors) Has the 23-month MA coming in at 93.81-Feb low was 93.88 and Oct 2017 the opening print was 93.83. Only if clears 97.69 does it get interesting for Monday
IYT (Transportation) 191.50 will help if clears. Otherwise, 180 in focus
IBB (Biotechnology) 108.23 is last week’s low
XRT (Retail) Failed the 50-WMA (47.20) with 23-month MA support at 44.50
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