August 27, 2017
By Geoff Bysshe
This week the cover of Barron’s had as one of its headlines “Time To Dump Stocks?”
This should not be ignored.
Having been an avid Barron’s reader for 3 decades, I would describe such headlines as…
…not usually very timely,
…and usually a good indication of institutional sentiment.
With that in mind, consider the fact that SPY, DIA and QQQ are all sitting on or near their 50-day moving averages, while the IWM is sitting just below its 200-day moving average.
In short, every major index is at an inflection point that institutions tend to respect as good areas to dump or buy stocks.
Last week’s market action suggested that Wall Street was more focused on vacation than the stock market, but I’d be willing to bet that many big traders are looking towards September with the same question as Barron’s on the top of their mind.
Last week the U.S. stock indexes closed higher on a weekly basis, however, it felt more like they simply drifted sideways because that was the action for the last three days.
In fact, the SPY did not trade outside of its Tuesday range.
The major averages are coiling up like a spring, and under the surface there are some very interesting crosscurrents.
There are several areas of “cross currents” that make last week’s sleepy market one that should not be ignored.
In this week’s Market Outlook video I review the longer term trends that highlight the current risks, and reasons for bullishness in U.S. equities. One of the important observations in that commentary is the current steady correlation of stocks to bonds.
If you look at the trends of August, it is clear that as stocks have drifted lower, bonds have drifted higher. This is a reiteration of a finer point that this commentary began with last week.
The suggestion here is one of a clear indication of a move to safety, or ‘Risk Off’ mentality. Our Big View gauge of this has been flashing this warning for weeks and it’s still very much in place.
If stocks begin to slide, look for TLT’s to accelerate higher.
The bulls are not all in hibernation, however…
Under the calm consolidation of the general market last week there where some interesting developments.
I’ve put an “*” next to the ETF’s listed below to indicate charts that that I’d highly recommend you keep your eye on this week. In short, here’s why…
XRT, IYT, and KRE all have potential to turn around.
KOL, FXI and EWW are taking off.
SPY, UUP, and IYR are all very interesting inflection points.
The indexes may have been quiet last week, but there’s plenty going on.
*S&P 500 (SPY) Four days of consolidation inside last Tuesday so Tuesday’s range is the key. Support 243.75, 243.55 and a gap fill at 243.20. Significant resistance at 245.62, 246 and 246.50
Russell 2000 (IWM) Support at 135.75 and then 135.50 and 135. Expect resistance at 137.30, then 137.70, and the big number to clear is 139.
Dow (DIA). Gap fills at 217. Expect resistance around Friday’s high, 218.85, then big resistance at 220.
Nasdaq (QQQ) Four days of consolidation inside last Tuesday with quick dip below it on Thursday. Look for support around 141.50, Thursday’s low. Gap fills at 141.18. More support at 140.90. Resistance is at Tuesday’s high, 143.35 and 144.00-.40
*KRE (Regional Banks) Nice up day, closing over 10-DMA. Support around 51.50. 54.00 is major resistance.
SMH (Semiconductors) Still range bound – 84 to 88. 85 is good support.
*IYT (Transportation) Head fake on the breakdown? Must now hold 162.38, and should hold 163.30. A close over 166 would suggest upside potential. Bigger resistance is at 168.
IBB (Biotechnology) Look for support around 311. Should now hold over 308.50. Next big resistance area to break is 318, but there is plenty of resistance leading up to that.
*XRT (Retail) Traded well. Needs to hold and consolidate over 38.70. Big resistance at 40.
*IYR (Real Estate) Inside day at the key level of 81. A break higher would look good. Should hold 80.40-80.00 area.
XLU (Utilities) Another new high (6th consecutive). Support at 54.40 and 53.60.
GLD (Gold Trust) Wild day but uneventful close. Key levels to break are 123 and 123.50. Over that it runs. Look for support at 120.50.
GDX (Gold Miners) Broke key high of 23.50 but didn’t hold up. If it continues higher, it looks good. Look for support at 23, 22.30-.50. Expect resistance at 23.80 and 24.90.
SLV (Silver) Wild day like GLD, but uneventful close. 16.30 clears key high and the 200 DMA. 15.50 area is support.
USO (US Oil Fund) Tight consolidation continues. Looking for a break over $10.
UNG (Natural Gas) Still in a bear trend according to phases. If it has a 30-min Opening Range breakout over 6.75 it could indicate a multi-week bottom. The all-time low is 5.78, the weekly base high is 9.80. So the risk is just over a $1 and the first target is just over $2, but if it breaks $10 then $12 is the next stop.
*KOL (Coal) Nice continuation after a big close over $15! Look for support at 14.90-.80.
TAN (Solar Energy) 22.00 resistance and 21.00 support. That’s all you should focus on.
TLT (iShares 20+ Year Treasuries) Expect support at 126.00 Should not break 124.50. Big support at 124. Resistance at 127.50, 127.90 and then 128.15.
*UUP (Dollar Bull) Big down day leaves it at key level of 23.96. This is the low zone of a multi-year range. Look at your weekly charts for any close over a prior week’s high that is over 24.20. Until then, stay away.
*FXI (China) Big new high for the move, because long-term charts show 44 as a key area. If it can hold over 43.40, the long-term picture is beginning to look like an accelerating breakout. Support at 43.40 and 42.75. Next resistance is 46 - 46.50
*EWW (Mexico) Continues to look good. Broke highs, but didn’t run. If it closes over 57.75 it could run higher for a while. It should hold 56.80 and then 56.
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