Where Dragons Dwell in the Stock Market

January 7, 2019

Mish's Daily

By Mish Schneider

“In this region of me
A great dragon is lying
On the wealth of a mighty world
My own world inside” Gojira

The four indices reached their targets after last week’s monster rally.

Singling out the Russell 2000 IWM, we were looking for 140.

Today’s high was 140.37 and it closed at 139.55.

Before we scream “SELL,” a first attempt and retreat could be tricky to short.

And tricky to buy.

What then, should we look for as the next move?

Last week’s note was, “the Russell 2000 IWM, if holds 134.65 by the end of this (last) week, returns over the 200-week moving average and back from a weekly distribution phase into a weekly caution phase.”

That means that should IWM have a second week close over that level, the improved phase confirms.

Yet, we do not need to wait until Friday to assess the market’s next move.

For comparison, I would look at 3 other Modern Family Sectors.

In Semiconductors SMH, a move over 88.40 or the high of the last week in December, is a positive.

If SMH fails and closes below 85, warning.

Transportation IYT, if that fails 164, warning. Plus, it could see a move to around 170 first.

Retail XRT, which may have triple bottoms at 38, now, has to clear the 200-WMA is at 44.84. If it fails to clear that level, could be a sign that this rally is peaking.

As far as outside influences, interest rates, we still believe, have bottomed.

If you want to see a classic case of a rally to the 200-WMA resistance and failure, look no further than TLTs.

A move in TLTs under 121.50, should seal its fate.

Circling back to IWM, we are watching for dragons.

If IWM cannot get back over 140, first dragon to breathe fire, will be a close under 138.

Then, should it break back below the 200-WMA at 134.65, consider this:

“I met the dragon
In a cave by the mountain
Now I bring the evidence
The beast is alive” Gojira

S&P 500 (SPY) 251.62 pivotal support. 258.62 is resistance.

Russell 2000 (IWM) 138.70 is the closest support and 140 is resistance. If this can clear, next level is 145.

Dow (DIA) 235 now pivotal for tomorrow-if cannot hold, then maybe the rally has peaked.

Nasdaq (QQQ) 155 now pivotal support. 159.50 is the resistance

KRE (Regional Banks) 46.20 support. Over 50.20 it gets interesting

SMH (Semiconductors Must hold 85.00. Over 88.40 can see move back to 91-92.00

IYT (Transportation) 164 now the underlying and important support. Possible rally to 170-171.50

IBB (Biotechnology) 103 is the 50 DMA resistance it ran to on Friday. Now pivotal support

XRT (Retail) 44.84 the 200-week MA resistance. 40 best underlying support

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