January 6, 2020
By Mish Schneider
I had so many phone calls over this past weekend from people who were panicking about the market given events in Iran.
I directed those folks to my lead sentiment in the weekend Daily:
“Since Trump became POTUS, his greatest skill is his ability to skirt potential crises.
As a trend trader, one would assume he will do the same with the Iranian situation.”
After the market rallied off the opening lows last Friday, today, all four indices held key support and closed the day out green.
The S&P 500, NASDAQ 100 and the Dow Jones Average, all cleared back over their fast (10-DMA) moving averages.
The small caps, Russell 2000 closed green, but not enough to clear its fast moving average.
Hence, the theme we have been talking about for months, the one where the big rollers find constant buyers, while the small caps, transportation index and retail sector lag, prevails.
On the left is the Transportation ETF I like to track or IYT.
The 50-DMA is at 194.57, which means with a close just below it we are in an unconfirmed caution phase. The magenta line is the 10-DMA.
The slope on the 50-DMA is neutral making the momentum of the caution phase at this point, also neutral.
The key here for the bulls is that IYT closes tomorrow back over the 50-DMA. Otherwise, the caution phase will confirm. That could take IYT skidding down to test the 50-week MA below at 189.10.
The Russell 2000 IWM, has to clear the 10-DMA at 165.89 and hold above there.
Otherwise and especially if IYT is weak, IWM could see a drop close to its 50-DMA at 161.00
Two elements are at play. First is the potential for more fallout from Iran.
The second is what happens with Phase One and China.
The SPY went to new highs on optimism of the Fed remaining dovish and China coming to terms with the US.
It sold off on Iran, but clearly, still reflects overall optimism concerning China, the Fed and most likely, the ongoing corporate buybacks.
The gold-leaf around the bears represent the hedge we are seeing in the metals.
To watch for a full-on bear revival, keep it simple by watching IYT and IWM.
Russell 2000 (IWM) Must clear 167.12 with 165.89 pivotal and 163.70 support
Dow (DIA) All-time high 288.63 with 285.50 pivotal
Nasdaq (QQQ) ATH at 216.16 with 212.24 pivotal support
KRE (Regional Banks) 56.70 the 50-DMA to hold
SMH (Semiconductors) ATH at 144.94 with 140 pivotal. Below, could see move to 135.
IYT (Transportation) 195 is still key pivotal area. 200 key resistance. 192.74 support
IBB (Biotechnology) 121.50 resistance and 115.50 support
XRT (Retail) 45.41 pivotal. 46-47 resistance. 44.70 the 50-DMA
Every day you'll be prepared to trade with: