January 9, 2019
By Mish Schneider
Even with the huge rally off the lows, none of the indices have yet to trade back over their 50-daily moving averages.
That means the market phases are Bearish.
Furthermore, only one of the Modern Family members is in a Recovery or Recuperation Phase.
Biotechnology IBB, cleared the 50 DMA on Monday.
Not surprising that would be the first (and thus far only) MF sector to improve in phase.
The most heavily speculated area and often a reliable judge of public sentiment, IBB reflects the optimism that hit the market as of December 26th.
Yet, the public is usually late to the party, buying highs and selling lows.
When we look at Semiconductors, Retail, Transportation, Regional Banks and the Russell 2000, we see a strong bounce in a Bear market.
This is not opinion. This is fact.
Until the rest of the Modern Family clear and confirm into better phases, we continue to stalk for the end of this move up.
How will we know the rally is over?
First, let’s examine the fundamental factors.
The trade war-maybe a hopeful resolution around the corner-a big maybe.
Debt-not going away anytime soon. Not to mention that foreign countries have begun to lose their appetite for buying our debt.
The dollar-under pressure-ultimately, this is not a good scenario for the market.
The interest rates-yeah, thank the Federal Reserve for sharing their minutes and the dissension on the December raise. Nevertheless, we still seriously consider the historical low ratio between commodities and equities.
And, we still consider the metal rally as only the beginning or a sea change into hoarding raw materials, despite slowing global economic growth.
How does the Fed deal with that? They will have to raise should that occur.
The government shutdown-now in its 19th day.
Slowing economy-although the evidence has merely suggested this possibility, we are watching the fourth quarter earnings, unemployment numbers and GDP.
Even though these factors loom large, the market is Fed happy right now. So what do we do?
This is where I love the charts and following price.
While the momentum is up, raising stops on existing long positions is smart. Plus, carefully picking anything new from the long side is smart.
The indices have to improve phases. If they cannot, that’s a sign, especially if they close red and break support levels listed below.
Finally, watch the weekly charts.
IBB, the Russell’s IWM, Transportation IYT and Semiconductors are all still in Caution phases (above their 200-WMAs but below their 50-WMAs). Retail XRT and Regional Banks KRE are both in Distribution Phases (under both the 50 and 20-WMAs).
Either XRT and KRE will play catch up, or, they will drag IBB, IWM, IYT, and SMH back below their 200-WMAs.
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S&P 500 (SPY) 258.62 is pivotal with a move below S1 and 256.19 signaling a move lower to 255 then 252.
Russell 2000 (IWM) 140 best underlying support and unless this can clear 145, we could see that number soon.
Dow (DIA) 235 pivotal support-244.60 is the 50-DMA
Nasdaq (QQQ) 160 nearest support with the 50 DMA at 162.50.
KRE (Regional Banks) 49.85 pivotal support. A weekly close over 50.20 it gets interesting
SMH (Semiconductors) 88.40 pivotal support. 91.20 the 50 DMA.
IYT (Transportation) This still has a long way to go to see the 50 DMA at 179.35. So for now, a close under 170 would not be a good sign
IBB (Biotechnology) 108.30 good resistance. If 106.77 fails, I’d be cautious
XRT (Retail) 44.84 the 200-week MA resistance. 44.62 the 50-DMA. Now must hold 43.75 pivotal support