Last night we wondered, is the market correction was over? After all, both SPY and QQQs traded into resistance. For SPY, that number is 342; for the QQQs, it's 282. The DIA had to hold 28,000.
Today, SPY tried to clear 342, but wound up closing red and under 340. QQQs tried to take out 282 and, as the first to go red, it closed down over 1%. The Dow did indeed hold 28,000.
The Fed came out dovish, with no change to rates and the comment that rates will stay near zero until 2023. But they were once again vague on how to get inflation going. Furthermore, the minutes yielded nothing unexpected.
So, did that put the kibosh on the rally? I include a chart of the volatility index.
As the market did exactly as one would expect, failing to hold above the resistance levels in SPY and QQQ despite the run, it's that time again. Or, as we can call it, the continuation of the love/hate relationship the market has with the Fed.
First off, junk bonds and high-grade investment bonds, the Fed's playground, are still doing well. So that tempers real bearishness.
However, on August 26th, VXX made a low at 23.64 and then put in a reversal bottom. Currently, VXX closed down about ½% on an options expiration day, so the better assessment will be tomorrow and Friday. If SPY and QQQs cannot recover today's early bounce or if the Dow gives up 28,000, watching VXX is a good way to hedge or at least assess your portfolio.
I still believe that as we get closer to the end of this month, another correction is coming. But of course, we need more evidence (like in JNK and LQD). VXX over 25.03 is a possible entry, with risk under the August 26th low.
Watch my latest on Wall Street Media regarding the run to resistance.
- S&P 500 (SPY): 338 must hold support. 340 pivotal, 342 resistance
- Russell 2000 (IWM): 153 support, 155-156 resistance
- Dow (DIA): 280 pivotal support, 285 resistance
- Nasdaq (QQQ): Right on the 50-DMA - could get ugly if breaks again; 270 support
- KRE (Regional Banks): Tried but could not close over the 50-DMA, so still bearish
- SMH (Semiconductors): 171.25 support and, if breaks 170, a short consideration
- IYT (Transportation): 200 key support
- IBB (Biotechnology): Sitting right on the 50-DMA
- XRT (Retail): 49.30 the 50-DMA
- Volatility Index (VXX): Eyes here tomorrow
- Junk Bonds (JNK): 104.90 support
- LQD (iShs iBoxx High-Yield Bonds): 135.50 support
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
