Is the market correction over?
Although a 10-15% correction is normal, the bigger question is whether the bounce we just saw from recent lows is a sell (rather than buy) opportunity. Both SPY and QQQs are trading into resistance. In SPY that number is 342; for the QQQs, we are looking at 282. The DIA has to hold 28,000.
Interestingly, volatility also closed green today, which tells me investors are nervous in spite of the slew of good news from the NVDA merger, vaccine hopes and a China rebound. Furthermore, the Fed meeting minutes will be released Wednesday. The expectations are for a dovish stance. What interests me is what they say about their plan for getting inflation up, which has yet to be defined.
Is there a possibility of another more a severe correction this year? Without a stimulus plan from the government, although I believe it will happen in the final hours before the election, the market will get hurt. Plus, the election and rising protests could hurt if the violence increases. Moreover, a second wave of COVID is the most frightening possibility.
So, what should we watch for now? The outliers are still the best "tell."
Junk Bonds (JNK) have to hold around 104.80. High grade corporate bonds (LQD) should hold 135.50.
Perhaps the most important outlier is what happens to the Dollar. A move in DXY or the dollar continuous contract under 92.80 could spark more buying in the commodities, but also more fear about the recent rally in the Chinese Yuan. Volatility is yet another key, as the index held the 50-DMA and over 26.00 could be an early warning sign.
For now, I am still very bullish in gold, silver, and miners. I am also watching, with no position, a bullish bias in uranium and natural gas.
If the market holds, I still like some of the small-cap growth stocks. For example, I am watching Fastly (FSLY) for a move back over 84.00. Otherwise, please watch the indices carefully here and if they start to rollover, I would raise stops and take profits on the winners.
Check out my appearance yesterday on "The Dollar Diva" with host Debbie Bloyd.
- S&P 500 (SPY): 342 key resistance to clear 338; support then 333
- Russell 2000 (IWM): 153 pivotal, 150.75 key support
- Dow (DIA): 280 pivotal, 274 key
- Nasdaq (QQQ): 282 resistance, 275 support, 272 must hold
- KRE (Regional Banks): Could not confirm a recuperation phase, so back to bearish
- SMH (Semiconductors): 171.50 support, 175 resistance
- IYT (Transportation): Strong relative to the other sectors. Must hold 200
- IBB (Biotechnology): Sitting right on the 50-DMA at 135.90
- XRT (Retail): 49.00 the 50-DMA
- Volatility Index (VXX): Eyes here tomorrow, especially if VIX clears 26.00
- Junk Bonds (JNK): 104.80 support
- LQD (iShs iBoxx High-Yield Bonds): 135.50 support
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
