Risk Neutral Market Gauges Ahead of Sunday Deadline

October 1, 2023

Mish's Daily

By Mish Schneider


We do not want to walk down the political aisle.

Nonetheless, what person can turn their heads away from the Sunday deadline on funding the government.

The aftermath of a shutdown will most likely include a credit downgrade for the US.

Do Americans need another reason to distrust the politicos?

With a 90% consensus that the funding will not pass, the bounce we saw in equities last week could be short-lived.

The Retail ETF XRT had a technically perfect mean reversion in momentum and a classic glass bottom reversal.

Coming into Friday, 3 of our risk gauges said risk neutral.

That gave us hope that our Granny Retail could lead us out of harm’s way.

And, on the heels of Nike earnings, she kinda did.

However, will a bounce in the consumer sector help keep the risk gauges neutral?

For that answer, we turn to another old reliable friend, high yield, high debt junk bonds.

These bonds are a key influencer for risk, after all, how bad can things be if companies with junk ratings are being bought for their higher paying yield?

That is a big risk on factor.

We also look at their performance relative to the long bonds (TLT).

Even though neutral can turn to risk off, any hope from bond traders and/or the retail sector could also see risk neutral turn to risk on.

We can hope, right?

The chart of HYG has several fascinating and a somewhat taming influence on the extreme negativity.

For starters, HYG held its ground on Friday as the indices turned red. (So did XRT by the way).

Secondly, HYG returned over the July 6-month calendar range low (red horizontal line).

Thirdly, HYG held the March lows made after the mini banking crisis.

Fourth, HYG had a mean reversion buy in our Real Motion momentum indicator.

Fifth, and here is the risk gauge ratio, HYG is strongly outperforming the TLT (Leadership indicator).

That is what bulls need to continue to see.

Conversely, bulls do not want to see HYG fail the March lows.

Nor do they want to see XRT take out last week’s lows.

Furthermore, they do not want to see TLT catch a bid in fear of an oncoming recession while junk bonds underperform.

We like it when we can simplify the narrative.

Junk bonds help us to accomplish that.


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Mish in the Media-All clips here

BNN Bloomberg Opening Bell 09-27-23

Business First AM on Indices 09-27-23

Benzinga Pre Mkt 09-22-23

Final Bar with Dave Keller  09-21-23

Your Daily Five Stockcharts 09-20-23

Article-Q4 Stock Market Outlook 09-20-23

Article-Kitco Oil 09-20-23

CMC Market Daytrading Commodities Ahead of the FOMC 09-20-23

Business First AM 09-19-23

Yahoo Finance Chart Analysis 09-19-23

IBD Investing 09-13-23

Traders Edge Jim Iuorio Bob Iaccino 09-13-23


Coming Up:

October 2 Schwab The Watch List

October 2 Spaces Wolf Financial on Money Show 

October 4 Jim Puplava Financial Sense

October 5 Yahoo Finance

October 5 Making Money with Charles Payne

October 12 Dale Pinkert F.A.C.E.

October 26 Schwab at the NYSE

October 26 Yahoo Finance at the NYSE

October 27 Live in Studio with Charles Payne Fox

October 29-31 The Money Show

Weekly: Business First AM, CMC Markets


ETF Summary

S&P 500 (SPY) There are multiple timeframe support levels round 420-415

Russell 2000 (IWM) 170 huge

Dow (DIA) 334 pivotal

Nasdaq (QQQ) 330 possible if can’t get back above 365

Regional banks (KRE) 39.80 the July calendar range low

Semiconductors (SMH) 133 the 200 DMA with 147 pivotal resistance

Transportation (IYT) Could be another bright spot if clears 237. 225 support

Biotechnology (IBB) 120-125 range

Retail (XRT) 57 key support if can climb over 63, get bullish

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