Mish's Market Minute

Are We in a Risk On or Off Environment?

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On Wednesday, the Russell 2000 (IWM) confirmed a cautionary phase change, with a second close under the 50-day moving average. A cautionary phase is defined by current price sitting under the 50-DMA, with the 50-DMA over the 200-DMA. Both IWM and Nasdaq 100 (QQQ) are in cautionary phases. This is important because the 4 major indices are split between bullish and caution phases.

Having said that, the next key support levels to watch are recent lows. For the QQQs, this would be last week's low at $309.66 and $207.21 for IWM. These are important areas to hold as they are within the recent trading range and can offer support for the market to spring back from.

However, while IWM and QQQ closed the day down, the high-yield bond ETF JNK is showing that buying pressure is still active. On Wednesday, JNK closed green for the day and has been able to hold over its 10-DMA at 107.83. If buyers continue to step up, the next resistance level to clear would be 108.62 from the 50-DMA.

Because high yield bonds are riskier investments, this shows that some investors are seeing this market pullback as a buying opportunity. Whether that is the correct approach remains to be seen, but at least we know which areas to watch for the market to hold or clear over.

To add one last piece of information into the fray, MarketGuage's proprietary risk indicator has recently shifted from a neutral standpoint to risk off. If the indicator stays in the risk-off position, going to cash or holding risk adverse positions might be the safest plan for the moment.


ETF Summary

  • S&P 500 (SPY): 385.80 next support the 50-DMA
  • Russell 2000 (IWM): Confirmed cautionary phase with second close under the 50-DMA at 220.20
  • Dow (DIA): Next support area 320
  • Nasdaq (QQQ): Watching 309.66 to hold
  • KRE (Regional Banks): 50-DMA at 62.82
  • SMH (Semiconductors): Needs to hold 227 area
  • IYT (Transportation): If cannot hold 245 area watch 240 next
  • IBB (Biotechnology): Main support the 200-DMA at 144.54
  • XRT (Retail): 50-DMA 81.83


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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