October 23, 2018
By Mish Schneider
With nearly perfect precision, the market, especially the Russell 2000 IWM, fell to test the monthly moving average I featured last week.
That level is 149.77. Today’s low in IWM was 148.92.
Then, like our beautiful friend, it climbed up the water spout, taking SPY and pretty much everyone else with it.
Some of the sectors, like Semiconductors SMH, broke the monthly support, but following IWM’s lead, came back above it.
Yet, is the reversal bottom that every bull would love to see in place?
Last night I wrote, “If you put it all together, the biggest tells will continue to be IWM, SMH and Transportation IYT (all still below their 50-WMAs). In fact, everyone in the Family is under their 50-WMAs.”
Today, even with the bounce, IWM did not even come close to the 50-week moving average at 159.48.
Nor did IYT at 193.08 or SMH at 104.
On twitter, novice traders can get confused or worse, lose lots of money if they follow recommendations blindly.
Yes, the bounce today was fun. Fun for a daytrade, maybe even a 2-day trade.
But, looking at the aforementioned instruments, the uptrend remains broken until otherwise confirmed.
Plus, there is still the trifecta of fundamentals.
The interest rates TLTs, sold off from the early morning high with the rally. That ought to tell you that the Fed has no interest in returning to an accomodative policy.
The U.S. Dollar UUP, eased a bit and quite possibly is showing some topping action. That could spark the commodities to run and definitely puts some pressure on the Fed to keep reducing the balance sheet.
Finally, oil USO, prices fell. Yet, they are still above the 200-week moving average having reversed a 4-year downtrend.
To me that means the fundamentals of rising rates, a potential falling dollar and firm oil prices have not changed.
So please, do be careful before you load up long. If you cannot answer these questions:
What is the timeframe of whom you follow? Are they saying it’s the bottom for what? The day, week, longer-term?
Did the instrument legitimately reverse? Did it clear R1? Will it close there? Did it change phase?
If these answers elude you, remember that the itsy bitsy SPYder got washed out once the rain came down on it.
S&P 500 (SPY) 274.56 is the 50-WMA. The rally took it up to 274.87 and then it closed below the 50-WMA. Plus, on those questions above-it’s not a confirmed reversal bottom, it didn’t clear R1, it didn’t change phase and it was a bottom today but so far, no sign that is the bottom.
Russell 2000 (IWM) 151.88 low from 10/12, is a good pivotal area for tomorrow. That and the 23-month moving average at 149.74
Dow (DIA) 251.55 the 200 DMA held. 250.23 is the 50-wk ma.
Nasdaq (QQQ) Best looking as it did not break 167.81, the last swing low. Makes sense to look here for an active long if it can get back over 175.40 area. If not, 169.57 its 50-week ma.
KRE (Regional Banks) This has broken the 23-month MA-if it is a lead indicator, then at some point the others will follow
SMH (Semiconductors) It’s better that it held the 23-month and clears 93.80 area. However, was that enough? Have to see this get over 97.20 next.
IYT (Transportation) Mr. Transportation touched the monthly MA too. It also corrected 10% from the topping reversal pattern. It’s oversold on the weekly chart. If good, has to clear back over 188.75 at least. Then still has a long way to go
IBB (Biotechnology) 106.16 the monthly MA low-holding so far
XRT (Retail) Failed the 50-WMA (47.20) with 23-month MA support at 44.50
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