On Monday, we talked about the potential for the market to get stuck in rangebound trading if pivotal price levels were not cleared in the major indices. That uncertainty carries into Tuesday, as the major indexes besides the Dow Jones (DIA) are struggling or making little to no change. This only confirms that traders need to be cautious before loading up on positions, as we are still looking for signs the market will continue higher.
With that said, while Tuesday's tech selloff could be concerning, along with the Russell 2000 (IWM) stuck between both its 50- and 200-DMA, two main sectors managed to outperform the trading session.
Tuesday's outliers are the Transportation (IYT) and Regional Banking (KRE) sectors. Though neither broke to new all-time highs, IYT has cleared a five-day consolidation area and KRE closed +2.8% on the day. Now, KRE has a second close over its 50-DMA confirming a bullish phase change. From a trading perspective, based on daily charts KREs sudden gap and go price action makes it tough to find a good risk-based entry. On the other hand, IYT has a better risk area, with support from Monday's low.
Either way, their outperformance merits investors' attention as we can now watch these spaces for trade setups. How these play into the new years' theme will be interesting if they can both hold their bullish phase over the 50-DMA.
Next, we should watch for the small-cap index (IWM) to clear its resistance zone over the 50-DMA at $226.69, which would give us a bullish sign for short-term trading.
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ETF Summary
- S&P 500 (SPY): 470-473 support.
- Russell 2000 (IWM): 226.69 resistance.
- Dow (DIA): Holding highs.
- Nasdaq (QQQ): Bounced off 50-DMA at 393.34.
- KRE (Regional Banks): 75.76 next resistance level.
- SMH (Semiconductors): Held over the 10-DMA at 310.76.
- IYT (Transportation): 281.45 resistance.
- IBB (Biotechnology): 143.25 next support.
- XRT (Retail): Lots of overhead resistance at 94 area.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
