September 6, 2018
By Mish Schneider
Magpies, illustrated in the photo, once September and the cooler weather hits, leave the high country and head low to find heavy cover.
As investors consider September one of the hardest months to trade, we are finding many leaving the rally and heading for heavy cover as well.
Yesterday, we looked at a shaky market house that still had good bones.
We based that analogy on the Transportation sector (IYT).
Today, with the S&P 500 filling the runaway gap and NASDAQ continuing its decline, the market got shakier still.
However, IYT hung in there.
Since Magpies do not migrate to other countries, rather they fly from high to low and back to high, we look at the price action similarly.
Using Transportation as a lead indicator, today’s pattern sticks out like a shiny object among many dull ones.
Semiconductors (SMH) for instance, had the biggest percentage decline among the key sectors.
Yet, SMH held the 50 daily moving average at 106.
A bounce tomorrow, could provide our trading magpies with a low risk opportunity to fly higher.
A break of the 50 DMA will put traders in heavier cover.
Retail (XRT), a sector we counted on to move out of the recent consolidation, instead sold off. It too, though, is holding the 50 DMA.
The Russell 2000 (IWM), needs to continue to hold 170-the area it broke out of in August. A close over 172 would look better.
It’s Transportation though, and how it flies up or dives for cover we need to keep our eyes on.
If IYT breaks under 202, we have one more test of support at 200. Under that level, we will all dive for cover.
A move over 205.50, and the number of bullish magpies will multiply.
S&P 500 (SPY) No more runaway gap. That does not make for a bearish scenario though. What we will look for now is support around 286.50 to hold with a move back over 289 better
Russell 2000 (IWM) 170 big support to hold.
Dow (DIA) 259 pivotal support to hold
Nasdaq (QQQ) 179.50 is the 50 DMA to hold. However, this is the one index most vulnerable as it had a legitimate reversal pattern after making new all-time highs last week. If it can get back over 184.25 area, way better
KRE (Regional Banks) Like to see this continue to hold 62.45 and clear 64.00
SMH (Semiconductors) 108 now resistance and 106 the must hold point on a closing basis
IYT (Transportation) Broke the fast-moving average and is either going to hold and get back above 205.50, or fail 202 and then 200, which could mean a double top.
IBB (Biotechnology) 115-116 next area of support and 120 now becomes the pivotal resistance
XRT (Retail) 50.40 is the 50 DMA
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