Two Cures For The Current Market Malaise

August 13, 2018

Mish's Daily

By Geoff Bysshe

Stocks tried to shake off Friday’s bearishness this morning, but they couldn’t.

There may be several reasons why, and I’ll discuss them later.

First, the way in which the market acted today is worth noting.

The SPY and DIA peaked at Friday’s high, as the TLT and VXX bottomed at their Friday lows. Meanwhile the strongest performer on Friday, IWM topped out near its floor trader pivot.

The QQQ did break out over Friday’s highs, but with the other 5 instruments reversing at logical and bearish levels, it was hard to believe that the QQQ’s would prevail.

In yesterday’s commentary I suggested that the hope for the bulls may rest in a snapback rally today.

Since that didn’t happen…

The market’s problem right now is likely that it’s tired, disinterested and a little nervous.

This is not a recipe for a nice move up without a catalyst, and today’s price action was a reflection of this condition.

I’m suggesting the market is tired because, as I pointed out in last weekend’s MarketOutlook, momentum, as measured by Real Motion, has leveled out or been declining in the SPY, QQQ, DIA, and IWM since June.

Also in the weekend’s Market Outlook, was evidence that the market was “disinterested” at new swing high. This means that while the indexes like SPY and QQQ where challenging new swing highs, the measures of market breadth like the McClellan Oscillator was turning lower. And the number of stocks moving up with the market has been declining.

The market’s malaise could in part be to the fact that it’s August, but it's concerning because it’s also nervous.

I’m suggesting it’s nervous because of the jump in bond prices, and the US dollar which represents “risk off”, combined with the VXX rallying.

All of this is reflected by the fact that the members of the Modern Family have not had any scary downward moves recently yet all but XRT and IYT are in Warning Phases.

There are several ways for a market like this to “wake up.”

  1. Big surprising bullish news.
  2. Change from nervous and disinterested to scared and oversold.

Both are difficult to time, so until there is a notable change, I’ll be cautious on declines and suspect at the beginning of market rallies.

S&P 500 (SPY) Friday’s high of 284, confirmed to be resistance, then 285 should be serious resistance. Today’s low needs to hold. Under that the 280 level is big.

Russell 2000 (IWM) Broke 4 days of consolidation, but didn’t follow through. Lots of resistance near 169. Look for support around today’s low, then 165 and the swing low at 164.

Dow (DIA) Same story as the SPY. 255 likely to be strong resistance. 258 is the next swing high. Today’s low is support to hold, then swing low at 251.

Nasdaq (QQQ)  182.93 is the all-time high, and the key support is at 179 then 177.75 then the 50 DMA at 175.80

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