August 21, 2017
By Geoff Bysshe
The market needs more solar eclipses.
In yesterday’s commentary I concluded that Monday’s market should be approached with and open mind because 3 of the 4 major stock indexes were sitting on a big support level, and therefore…
Further declines below these support levels could snowball into an ugly decline.
Sure enough, early in the trading session, the SPY, QQQ, and DIA all broke their Friday lows and major support levels, which “should have” precipitated an ugly decline.
Fortunately however, today was the biggest solar eclipse event in over a century in the U.S., and the market did not decline.
As the SPY, QQQ and DIA all broke their key support levels, there were several indicators that the breaking of support had not caused a meaningful level of fear in the market.
For example, the IWM did not breakdown, TLT was not breaking its Friday highs, and the VXX was struggling to rally at all, much less break its highs from last week.
All of these divergences suggested that the market had not gone down far enough below the support to create panic or even much fear at all. And as a result, the decline end and the day was a typical consolidation day.
I covered these divergences in the Weekly Market Outlook video over the weekend. Watch it if you’d like more detail on how these same indicators of the market’s mood began to show signs of less fear of a decline beginning on Friday.
These divergences, are enough evidence to be skeptical of an emerging trend especially when the market is so close to its well defined support level.
These will also continue to be good levels to measure meaningful fear during declines for at least the next several days, so keep an eye on them.
So what does the eclipse have to do with it?
There are two messages in today’s commentary. The divergences you should be watching right now, and how the media or market analysis often associates news as the cause of market direction in a way that is misleading.
I could argue that the eclipse altered the mood of traders and that’s reflected by the divergences, but I won’t. I don’t think it did.
The eclipse didn’t impact the market. This is the second lesson of this commentary.
I didn’t mean to trick anyone with the headline of this commentary.
The eclipse was the big news of the day, and all too often the media will report the ‘big news of the day’ as the reason for the market’s move, just like I did with the eclipse.
Unfortunately, that practice leads to a lot of misconceptions about why the market moves the way it does! Most economic or political news affects the market about as much as the eclipse did!
This exaggeration of the significance of the news on the market can be the worst in months like August when there may not be much news at all. So be skeptical!
Watch the market, not the news.
S&P 500 (SPY) 241.50 key support. Resistance at from 243.70 to Friday high (244.20) then 244.80-245 is a big area.
Russell 2000 (IWM) Bottom of 10-month range is the 133.50 area. A break lower would mean 130 is the next big level of support. Expect resistance at 136 and 137. Inside day.
Dow (DIA) Sitting on the 50-DMA at 216, Next support is 214.75. Expect resistance from 218-218.5.
Nasdaq (QQQ) Straddling its 50-DMA, bulls need a close over 142. Some support at 140. Gap fills at 139.22. Bigger support at 138.
KRE (Regional Banks) Sitting on the bottom of a well defined 6-month range. 51 is the floor. 54.00 is major resistance. Inside day.
SMH (Semiconductors) Range bound – 84 to 88. 85 is good support.
IYT (Transportation) Must hold Friday’s low (163.47). 162 then 160 are next support. Expect resistance at 165. Inside day
IBB (Biotechnology) Sitting near 305 which is a pivotal area, but the big areas to watch are 300 below and 312 above
XRT (Retail) The 38 level was a major low in 2016 and 2014. Continues to slide, and closed under 38. Wait for it to stabilize.
IYR (Real Estate) Nice rally today, but still stuck in a big range. Short-term key levels are 78.70 support and resistance at 81.
XLU (Utilities) Reached multi-year highs. Consolidation day today but good close over 54.60. Support at 54.40 and 53.60.
GLD (Gold Trust) Key levels to break are 122.80 and 123.50. Over that it runs. Look for support at 120.50.
GDX (Gold Miners) Same idea as GLD. Key levels to break are 23.25 and 23.50. Look for support at 22.30-.50
SLV (Silver) 16.30 clears key high and the 200 DMA. 15.50 area is support.
USO (US Oil Fund) Gave back Friday’s gains but back into support. Still looks like a base.
UNG (Natural Gas) Still in a bear trend according to phases. Nice rally today. 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) Watch this for general support for any rally in USO and UNG. Note the high after the election of President Trump has been the defining resistance level. A break above it could be the ‘secret’ tipping point to a rally in the energy complex. Watching for a break over 14.80, then more importantly 14.90.
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 126.40-126.00 Should not break 124.50. Big support at 124.
UUP (Dollar Bull) This is simple and big. 23.96 to 24.20 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) has to hold 41.50 on a closing basis. Bullish if it closes over 42.80.
EWW (Mexico) It looks good. Should hold 56, stop under 55.30.