Mish's Market Minute

Major Indices Create Important New Support Levels

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The Fed has announced it will continue with its tapering plan. However, the Fed will decrease bond-buying by 10 billion per month, instead of the previously stated 15 billion. As of now, the program is set to buy 120 billion in bonds per month. This dovish sign creates an easier environment for the economy and stock market to ease off the Federal Reserve's support.

After the announcement, the four major indices rallied into the market close, venturing further into new high territory. With that said, what key levels should investors look for next as they buy or take profits based on the recent break to new highs?

One thing investors should always keep in mind is their risk tolerance. When trading, you always need a cutoff level of where you will get out no matter what happens to your trade or investment. In the case of our current rally, the obvious cutoff level for anyone trading the major indices is the recent breakout point.

As seen in the daily charts above, the black lines show the levels where the index cleared to new highs. This is the area each index should hold if the market is going to keep its upward momentum. Though breakout areas are often revisited, ultimately price should bounce back as new buyers hold the line. Even if you are not trading the major indices, watch these levels, as you want the general market on your side when buying new long setups.

Now that the Fed has shown their tapering policy is more friendly than investors expected, the next focus will likely turn to inflation. Nonetheless, for the moment, watch for the current break to hold, as the Fed has more time to focus on inflation and rising interest rates in the coming year.


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ETF Summary

  • S&P 500 (SPY): 454 support.
  • Russell 2000 (IWM): 234.53 support.
  • Dow (DIA): 356.60 support.
  • Nasdaq (QQQ): 382.78 support.
  • KRE (Regional Banks): 72.90 support area.
  • SMH (Semiconductors): 277 support.
  • IYT (Transportation): 280 resistance.
  • IBB (Biotechnology): Watching to clear the 50-DMA at 164.82.
  • XRT (Retail): 98 support area.


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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