The Economic Modern Family now has 5 members sitting in a confirmed cautionary phase. A cautionary phase is defined by the 50-day moving average stacked over the 200-DMA, with the price between both moving averages.
As seen above, the only member holding a bullish trend with its price over the 50-DMA is the Biotech sector (IBB). The rise in COVID-19 cases through the delta variant, along with news that big pharma companies will be offering COVID booster shots has helped support the biotech space.
Other members, including the small-cap index Russell 2000 (IWM), Transportation (IYT), Retail (XRT) and Regional Banking (KRE), are in the cautionary phase and will need to stay over support from Tuesday's low in order to stabilize.
The last two members are Semiconductors (SMH) and Bitcoin ($BTCUSD).
Since SMH has already broken under Tuesday's low, the next support level to watch is from the low of 7/27 at $247.43. Additionally, Bitcoin is having trouble staying over the 200-DMA at 44k. If it can't get back over 44k, we could see a move back towards support at 40-42k.
With that said, the big picture is that most of the Economic Modern Family are in a state of caution. However, phases often switch back and forth between caution and bullish, making the general market more volatile. Because of this choppy environment, traders should use extra caution going forward. This could be in the form of taking smaller position sizes, trading less, and closely monitoring existing positions.
Another thing to keep in mind is the markets' continued dependency on the Fed moving forward. The release of the FOMC notes from last month has given investors a taste of worry, as the Fed struggles to decide how to begin tapering economic policy.
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- S&P 500 (SPY): 436 next support level.
- Russell 2000 (IWM): Support the 200-DMA at 213.50.
- Dow (DIA): Needs to get back over 351. Next support level 347.
- Nasdaq (QQQ): 362 support to hold.
- KRE (Regional Banks): 64.72 pivotal level from the 50-DMA.
- SMH (Semiconductors): Needs to get back over 257.16 the 50-DMA. Next support at 247.
- IYT (Transportation): Resistance 257.34.
- IBB (Biotechnology): Support area the 50-DMA at 164.50.
- XRT (Retail): Needs to stay over 92.22. 98 resistance.
Assistant Director of Trading Research and Education