November 8, 2018
By Mish Schneider
Do you feel like the market has docked?
Are you unsure if you should pull your money out or push more money in?
If so, you are not alone.
One of the most difficult scenarios is a market that corrects into a warning or distribution phase, and then does a wicked bounce.
As many “experts” who see this bounce as the ship that will sail to new highs, is as many who see this as nothing more than a dead cat bounce.
Furthermore, the usual “safe” places, are not all that safe.
For example, the “old school” safety play is to go into bonds.
Not so much this year.
Utilities or Consumer Staples?
Firm but choppy.
I read an article today that said FANG stocks-Facebook, Amazon, Netflix and Google, overpopulate passive funds. Danielle DiMartino
In October, those stocks were down 12% at the lows.
Apple, perhaps the most popular passive fund stock holding, has crushed many passive investors’ accounts.
With the dollar and rates still firm, and while both active and passive investors continue to hope for smooth seas--
Do we pull our money out or put more money in?
The firm dollar has put pressure on oil, gold and many other commodities.
Hence, they have yet to emerge as safe places to park money.
The firm rates have put pressure on borrowing costs.
The “growth” stocks like FANG, have not demonstrated a strong bottom until they make a new 60+ day low and then reverse on big volume.
Therefore, growth stocks do not appear to be particularly safe right now.
The definition of a value stock is one that is considered cheap compared to their earnings and dividends.
For example, General Electric, GE is certainly cheap. It has crashed down to prices not seen since 2009.
General Motors, GM?
It traded lower in October and has basically rallied in line with the overall market. I’m not seeing much value there at this time.
A lot of investors piled into the various pot stocks. Canopy Growth CGC, for example, did give us a clear reversal pattern on October 30th.
It has rallied $15.00 since then. Yet, is that a haven?
Let’s just say I’d rather be there than in GE!
Currently, we are rather underinvested. And that’s perfectly fine for now.
It’s possible tomorrow will help clarify next direction.
Transportation IYT (my go-to), ran right up to resistance on a strong move yesterday. Today, IYT basically traded within yesterday’s trading range, (it took out the highs by 2 ticks).
For simplification, I’d look there. If IYT can rally beyond the last two highs, maybe we can set sail.
Otherwise, should IYT fail yesterday’s lows, make like a dry ship and dock!
S&P 500 (SPY) Confirmed the warning phase, the 200 DMA support line is at 276.07. The 50-WMA this now recaptured is lower at 275.16. Next resistance is the 50 DMA above at 283.
Russell 2000 (IWM) 160.73 is the overhead 200 DMA, which corresponds with the 50-WMA at 159.60. Under 155, I’d get more cautious.
Dow (DIA) 258.70 is the 50-DMA support this must hold
Nasdaq (QQQ) 172.27 the underlying 200 DMA support with resistance at the overhead 50 DMA at 178.40
KRE (Regional Banks) Liked the FOMC and rallied today-55.00 pivotal support
SMH (Semiconductors) 98.13 last week’s high. If that clears, we can see 101.50. If not, and this fails 94, worry.
IYT (Transportation) 190 pivotal with 193.70 the wall of resistance this must clear.
IBB (Biotechnology) 111.25 is exactly where the 50-WMA sits. The must hold spot is 106
XRT (Retail) Unconfirmed bullish phase. 49.40 pivotal support