Mish's Market Minute

Is the Market Sending Mixed Signals to Dip Buyers?

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On Tuesday, the Market attempted a recovery, with an initial gap higher followed by choppy price action throughout the day. Because the market is not selling off like it did early Monday, this is showing that the market is having trouble bouncing back quickly.

For the past week, the media continues to push the idea that dip-buying is the best plan right now, as this strategy has worked well throughout the year. However, timing a market entry has not been so easy, as traders who watched the 50-day moving average as an important support level for a dip entry were proven wrong from Monday's gap lower.

As seen in the charts above, the S&P 500 (SPY), Nasdaq 100 (QQQ) and the Russell 2000 (IWM) all gapped under their 50-DMAs on Monday. Looking back in the SPY, dip buyers have prominently bought while the SPY traded near its 50-DMA. Although price failed to hold the 50-DMA in the SPY, Monday supplied a new round of buyers as the market rallied near the end of the day.

Here is the problem — if we look back at the prior dips in the indices, they were quickly followed by large green days. Current price action is a flimsier, with large range days paired with relatively week closing prices. With that said, on Wednesday an FOMC Announcement will be made along with a Fed press conference. The market may be holding its breath before the meeting and waiting for clarity or more dovish Fed talk as a reason to rally higher.

On another note, High Yield Bonds (JNK) is showing strength through this current pullback, as it has not closed underneath its 50-DMA. JNK can act as a risk-on indicator, as strength in this ETF shows that investors are still willing to take on risky corporate debt. So, while we have a green light from the High Yield Debt ETF, we need to be careful with weaker-than-average price action, along with potentially pivotal Fed announcements on Wednesday.


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ETF Summary

  • S&P 500 (SPY): Needs to hold over 436.56.
  • Russell 2000 (IWM): Resistance the 200-DMA at 219.
  • Dow (DIA): 332 next support level. 345.06 gap to fill.
  • Nasdaq (QQQ): 369.80 minor resistance.
  • KRE (Regional Banks): Sitting in support area. Needs to hold over 60.88.
  • SMH (Semiconductors): Sitting on the 50-DMA at 265.
  • IYT (Transportation): 241.25 now minor support. 250 resistance.
  • IBB (Biotechnology): 169.2 the 50-DMA.
  • XRT (Retail): 91.14 support area. Looking weaker with downward slopping 50-DMA.


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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