April 9, 2018
By Geoff Bysshe
Today’s analysis is by Geoff Bysshe. Mish will return Monday April 23rd.
Today was a classic ‘boomerang’ day.
The easiest time for a novice to throw a boomerang and have it return is on a calm day.
This is analogous to today’s market action.
Today, the market took off in the morning simply because the fears that sank the market on Friday seemed to have diminished, or at least the ‘trade war’ news flow didn’t get worse over the weekend.
However, there wasn’t any compelling reason for the market to move up so much either. So, like a boomerang, the spinning or confused nature of the current market sentiment brought the prices back to were they started the day.
Never take your eyes off a boomerang, and don’t assume that no news is good news for the market.
The lack of news, and the boomerang price action can, however, help figure out what might happen next in various areas of the market.
Before we focus on the boomerang nature of today’s action (up then right back to where it started), we need to consider this…
Today was essentially a relatively quiet consolidation day. In all 4 ‘market watch’ ETFs (SPY, QQQ, IWM and DIA) the day’s range was lower than its 10-day average range.
In many cases (IWM, DIA, SPY) it was even an inside day, which means today’s range was inside Friday’s range.
So while the absolute size of the moves today may feel large, relatively speaking, it was a lower volatility day.
The implication of consolidation like this is that the next move won’t be a boomerang.
Keep an eye on the key ranges listed for the ETFs in this post for the levels to watch for the next breakout or breakdown.
While the consolidation suggests a coming trend, the boomerang can help anticipate the best stocks or ETF’s to follow when the trend begins.
Since the market did have a significant intra-day range movement (even though it was quiet and smaller than average), we can look to see which stocks and ETFs led or blatantly didn’t follow the market’s pattern.
The trends that were stronger on the upside are the ones I’ll look to follow if the market moves up, and vice versa if the market moves down.
Sticking to sector ETFs, the XLK traded up with the market and even broke its prior day high. If the market moves higher, I’ll look for this sector to lead
On the bearish side, IYT didn’t budge higher. It didn’t even break its OR high and instead close under its OR low. This looks like it will lead the market lower.
The same idea can be applied to stocks. DDD for example, had a nice move higher. Even with the weakness in the general market it closed over its prior day high. That’s bullish action that should continue if the market remains firm.
I’m not necessarily expecting the next trend will be gin to tomorrow, but when the market watch ETFs close outside of their range of the last two days it will be time to sharpen your focus on the market’s direction.
S&P 500 (SPY) Until it breaks out of its two week range, it’s just noise. The tighter range to watch for support and resistance is 258-265.
Russell 2000 (IWM) Levels to focus on are 154 and 148.
Dow (DIA) Levels to focus on are 235 and 246 then 248 is the 50-DMA.
Nasdaq (QQQ) Still must clear 161 and not fail 153
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