March 25, 2020
By Mish Schneider
I do not mean any insult calling a Family of my creation gnomes, but since the rally today was mythical and perhaps not real, I thought it apt.
Yesterday, considering the storm clouds above the market and the Family, we wondered how can a lonely wooden house keep standing in the midst of a storm?
I gave you several ways to track the moves. Let’s call it the Gnome scorecard.
First, we have the high yield investment grade bonds-LQD and Junk Bonds JNK.
Second, we look at the price of oil as seen through the ETF US Oil Fund USO.
Third, we see whether four of the six Economic Modern Family, who were in inside weeks, cleared where they had to.
Finally, we track our Prodigal Son Regional Banks KRE-who was the first to crash and needs to show that it has truly bottomed.
How did our Economic Modern Family mystical gnome scorecard do?
LQD or High Yield Investment Grade Bonds cleared the short-term moving average yesterday and cleared a good resistance level. Apparently, after all the stimulus, there is a rush to get back into them.
Junk Bonds JNK also rallied. However, no surprise high yield investment would do better than JNK as this has yet to clear its 10-DMA at 91.05.
Oil rallied too. USO cleared Tuesday’s high at 5.07. We need to see more stabilization from this sector
By the end of the day, none of the four gnomes closed above the inside week high they needed to clear.
Starting with Transportation IYT, intraday it cleared the range high 138.91. By the end of the day, not so much.
Biotechnology IBB had to clear 104.99-oops-it did not.
Retail XRT had to clear 30.93. Granny cleared intraday but could not hang on. That is now a key pivotal point.
The Russell 2000 IWM, had to clear 111.30. Gramps gave us an early scare, but he made it. However, by the end of the day, IWM gave it up and then some.
Our Regional Banks KRE sector held support. However, since this sector is tied to energy, we need to see more. The 10-DMA is at 32.50-that must clear and hold.
Furthermore, while the S&P 500 is up around 12% from the lows, KRE is barely up 5%.
About that gnome scorecard?
With lots of happy faces followed by frowns, at this point, it signals this as a bear market rally and not the bottom.
Russell 2000 (IWM) 110 pivotal now with 106.90 support
Dow (DIA) 208 pivotal then 205.75 support
Nasdaq (QQQ) 179 pivotal with 198 next resistance
KRE (Regional Banks) 30 support 33 resistance. 32.50 pivotal
SMH (Semiconductors) 120 resistance with 108 support
IYT (Transportation) 130 support and 143 resistance
IBB (Biotechnology) 104.99 resistance 99.60 support
XRT (Retail) 29.40 support and 31.00 resistance
Volatility Index (VXX) Cleared 50.00-now pivotal
Junk Bonds (JNK) 86.67 support with resistance at 91.00
LQD (iShs iBoxx High yield Bonds) 120 pivotal. 115.60 support and 126 a good place to short if gets there