Stock Investors Hide Behind the Volatility Mask

December 10, 2018

Mish's Daily

By Mish Schneider

blankAt one point today, the Dow was down around 500 points.

By the time 2/3 of the day ended, the Dow went to breakeven.

At the end of the day, the Dow closed up at 245.30.

It has gotten to the point where after a 500-700-point decline, any rally has one saying, “The Dow is ONLY down by 300, 100, etc.

For some perspective, this volatility is disconcerting.

Yet, the Dow and the S&P 500 remain far above their 2018 lows.

In contrast, the Russell 2000 IWM made a new 2018 low early this morning.

Hence, that small caps are weakest reflect the anguish of many traders who are now afraid of getting involved one way or another.

Furthermore, with December now nearly ½ over, one wonders whether volatility will slow down ahead of the holidays.

And if it does slow down, will that send a comforting message to traders, or might it turn out to be the calm before the (next) storm?

What is most fascinating today is how the Transportation sector performed.

The original 2018 low was made in February at 176.62.

Today, IYT posted a low of 174.64 and rallied back above the older low to close at 178.32.

Even more interesting or picture perfect, is that Retail XRT, had its 2018 low made in April at 42.70.

Today, XRT fell to 42.65 and closed green at 43.43.

Biotechnology IBB, had a similar scenario.

The 2018 low in IBB was made at 100.22 in April.

Yet, since then, four more attempts, including today, were made to test those lows. Each time, IBB had a bounce.

The low in Semiconductors SMH, this year is 86.95. Today’s low 88.90.

What is the point?

We now have 2 measures that can help us see the next direction.

First, in IYT, XRT and IBB we have today’s lows and even better, for IYT in particular, we have the old low to use a measure.

Secondly, should these lows hold, we have to assess how deep or shallow the ensuing rally will be.

A shallow rally will be if IYT cannot get back above 180.00.

A deeper rally will be one that takes out and holds above 182.80.

That is where the 23-month moving average is. A December close above there, and it proves the biggest point of all.

Underneath the mask, no rules are the new rules.

I will be traveling this week.

Geoff or Keith will be taking over for me.

Have a great one!

S&P 500 (SPY) Confirmed Bearish phase. 270 is the number this has to clear. The 2018 low is 252.92 made in February.

Russell 2000 (IWM) 150 the big resistance-and this must hold today’s low at 141.45

Dow (DIA) 233.20 the 2018 low made in April. 250 the looming overhead resistance

Nasdaq (QQQ) Broke but ultimately held 160.00. Now, needs to clear back over 166.50.

KRE (Regional Banks) 50.69 the old 2018 low. Then this rallied back above that level similar to the other Mod Fam sectors.

SMH (Semiconductors) 90.00 pivotal with 86.95 recent low

IYT (Transportation) Nice to see if this can hold above 176.62 and clear 180

IBB (Biotechnology) 104.75-105 resistance with 100-101 major support

XRT (Retail) 42.65 now major support with this needing to get back over 45.00

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