Recently, we talked about the ongoing battle between the Regional Banking Sector (KRE) and the 20+ Year Treasury Bonds ETF (TLT). Each has its 50-day moving average nearby and is looking to use them as potential support. Currently, the 50-DMA is at $145.97 for TLT and $65.09 for KRE.
On Friday, TLT made a considerable move higher from a key support level. Although TLT was near its 50-DMA, it never had a daily close under the moving average. This has made the 50-DMA an area of support for TLT. Looking forward, if strength continues in TLT, it could lead KRE to test its 50-DMA, as they tend to trade inverse to each other.
Having said that, TLT has been in an uptrend since late May. If this trend continues higher, TLT could harm the bullish market, as investors often buy bonds as a hedge against market weakness. Additionally, if bonds continue higher, it could escalate a worrisome trend.
Although we are seeing new highs in most of the major indices, the small-cap index Russell 2000 (IWM) continues to struggle with resistance at $225. This remains a key level for IWM to clear, as it has made multiple attempts to reach this price level in the past two weeks. However, if both the major indices push higher along with TLT, this could be signaling a stagflation type of market environment.
In this situation, the market could have increased volatility and less direction. If this does happen, we should keep an eye on consumer staples, such as foods and everyday goods that people must buy. We can also pay closer attention to not only soft commodities, but hard commodities, like metals, natural gas and oil reserves.
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ETF Summary
- S&P 500 (SPY): New highs.
- Russell 2000 (IWM): Needs to clear resistance at 224.57-225.
- Dow (DIA): 351 support.
- Nasdaq (QQQ): 362 next support area.
- KRE (Regional Banks): Watching to hold the 50-DMA at 65.09.
- SMH (Semiconductors): Next support area 256.70 the 50-DMA.
- IYT (Transportation): 258.22 the 50-DMA to clear.
- IBB (Biotechnology): 165.80 support.
- XRT (Retail): 93.51 support. 98 resistance.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
