The Kids: Semiconductors, Biotechnology, Regional Banks

October 22, 2023

Mish's Daily

By Mish Schneider

Most of you know our Big View product, since I often talk about our risk gauges.

In fact, I can report to you that our risk gauges show 3 out of the 5 with risk off.

Most interestingly, the SPY continues to outperform the long bonds, risk-on.

And junk bonds continue to outperform long bonds, risk on.

You can read more about it on Sunday when Donn and Keith publish their Market Outlook.

Another part of Big View is Sector Views. This part shows you the Economic Modern Family in their individual components.

To date, in the Daily, I have focused mainly on small caps and retail.

Now, I would like to show you 3 of the “kids”.

Plus, since commodities are now on everyone’s lips, I invite you to watch Your Daily Five segment I did Friday all about that.

Back to the kids.

Sister Semiconductors SMH has been making lower highs since the peak in July. She also trades below the July 6-month calendar range low.

Furthermore, SMH now underperforms SPY and the momentum on Real Motion shows a bearish divergence as momentum is under the moving averages which are in a bearish phase.

This is a potential game changer. Should Semi’s break September lows, it could get ugly since so much money is in the chip and tech sectors. People love to dollar cost average down. That makes me shudder.

Big Brother Biotech IBB never really got going in 2023. IBB peaked in August 2021 post-covid.

Biotech trades under its 80-month or 6–7-year business cycle as well. This breakdown is concerning and points to much weaker economic times ahead.

And Regional Banks or my dear Prodigal Son?

Well, he has one foot out the door. By that I mean, out of the Family.

Here’s why.

When I created the Economic Modern Family, Regional Banks and not big banks were included as a reliable way to assess the small urban and more rural communities’ trends on borrowing money.

A good sign for the economy is when Regional Banks do well, and “local” folks are borrowing and successfully paying back loans for expanding their lifestyles.

I called the sector Prodigal son after 2008 because of the bible story. The Banking sector is often lavish, then contrite when it oversteps costing Americans dollars.

Since March 2023, during the “bank crisis”, KRE and many of the companies in that ETF basket have done nothing pricewise.

Broadening out the chart to March, since the decline, KRE has traded in a $10 range.

Now, that is a lot better than breaking the March lows if one wants to look at it optimistically.

Nonetheless, the trading range could be more a result of the rest of the market holding up or just a general lack of interest in this sector.

Or it could be a speedbump before the eventual annihilation of Regional Banks.

That would leave me with a new chapter of the Family-do we kill off or merely send away our Prodigal Son?

And do we think KRE should be replaced with big banks or XLF?

Here’s where our newest member comes in-Crypto.

But that’s an article for another time.

And, if you check out the Crypto Town Hall X Spaces below, you can hear some of our thoughts.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at ben@marketgaugepro.com, our Head of Institutional Sales. Cell 612-518-2482

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.
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