Measured Moves in the Market

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September 21, 2020

Mish's Daily

By Mish Schneider


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Coming into Monday, we wrote targets on the S&P 500 and NASDAQ 100.

Based on the measured move from the all-time high and the ensuing gap lower (or topping pattern), we shared with you all that the SPY target was 322 and QQQs target was 260.

And wouldn’t you know it?

Both landed right there.

Why is that significant?

The leaders of the market not only complied with those support levels; the usual suspects went green.

Apple, Netflix, Nvidia, Zoom, Tesla, and Microsoft all closed up on the day.

Except for Tesla, all the others have been pandemic stars. Or in other words, tech-in-the-new-world outperformers.

However, this is in direct contrast to what many wrote about recently-that value stocks were making a comeback over growth stocks.

That certainly flipped course Monday.

To see a more sustained rally, ultimately, we need a couple of signs.

First is what was starting to happen until now, the economic modern family’s relative strength must hang in there.

The second sign is in what I continually call the Fed’s playground, junk and high corporate yield bonds (LQD).

LQD barely budged. Hello Fed and hello growth stocks.

Yet JNK did fall. But, right down to major support.

So what’s next?

The chart I share with you on junk bonds shows the move down to the 200-DMA.

It began showing signs of stress last week when it broke below the 50-DMA. Now, the key, regardless of what many tech stocks did today, is if junk and the “inside” market sectors can hold on.

The Russell 2000 IWM, fell the hardest capping nearly a 4% loss.

Regional Banks KRE fell over 5%. Granny Retail fell nearly 3%. Same with Transportation IYT and Biotechnology.

Sister Semiconductors SMH though fell only about .5%.

So shy junk bonds?

Because there is the spec market that habitually goes to the tech and chip stocks.

And then there is the market risk gauges, which refer to the tech stocks, but base the bias on the overall breadth of the market using these other key sectors like the modern family. Those are now flashing negative.

Junk bonds are sort of the middle ground tell. Last week the Fed said there is only so much they could do.

This week, the stimulus seems to be on the back burner.

So 2 things I am watching.

One is junk bonds so I can ascertain whether the Fed really is done with buying bonds and ETFs. If so, and Powell looks to the government, then I am also watching the political football and at what point does the focus go from justices to stimulus.

That is where the economic modern family will be a better gauge. After all, haven’t we learned by now that the crowded stocks like the aforementioned are only good for so long without help from the Family?

If the politicos care about the economy and reelection, then expect some announcement in the next 3 days about the stimulus talks going better. Or even a deal.

Otherwise, back to junk bonds; if the Fed gives up, not good.


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S&P 500 (SPY) 322 held. Did not fill the gap to 327.97 Friday low. Must fill

Russell 2000 (IWM) 145.33 the 200 DMA held and now must get back over 150 then 152

Dow (DIA) 275 key resistance to clear

Nasdaq (QQQ) 260 held perfectly, however, still under the 50-DMA at 272.90

KRE (Regional Banks) July low is some support at 34.00 with 37.00 place to clear

SMH (Semiconductors) Under the 50-DMA at 168.72

IYT (Transportation) 201 resistance to clear with support at 189

IBB (Biotechnology) 132 held but needs to get back over 135.44

XRT (Retail) 49.30 the 50-DMA failed but there is still hope there

Volatility Index (VXX) 27.40 resistance with 24.00 support

Junk Bonds (JNK) 103.56 the 200-DMA

LQD (iShs iBoxx High yield Bonds) 135.50 support held

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3 Comments

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    Mike Gray

    Any Contra ETF’s setting up for swing trades?

    - Reply
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    peter hanczaryk

    Great commentary on the markets.Thank you

    - Reply
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    Mish

    Hi Mike. This is why I’m watching bonds junk and high grade so carefully. If they hold can’t get negative. If they fail, there will be oops. But one announcement from govt on stim plan will reverse mkt fast. Playing it conservatively right now

    - Reply

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