On Wednesday, the Russell 2000 (IWM) made a divergence in price and our momentum indicator Real Motion (RM). In the above chart, we can see that, while the price has broken underneath the 50-day moving average (blue line), it has yet to break the 50-day moving average in Real Motion (red dotted line). With that said, this could be an opportunity for stock pickers to base trades off this hidden support level.
When it comes to watching the small-cap index IWM, we have a very cut-and-dry situation. If IMW breaks lower, RM will likely follow, as it's sitting at a weak spot and barely holding the 50-DMA. On the other hand, if IWM stands its ground, we can look for potential buying opportunities.
With that said, of the 7 symbols we watch within Mish's Economic Modern Family, the biotech ETF (IBB) is holding up surprisingly well as the market has pulled off.
Moreover, if IWM holds its current point in price and momentum, we could look for a quick pop in the biotech space.
One biotech company we have on our watchlist is Biogen (BIIB).
Sitting just below its 50-DMA in price, BIIB has a positive divergence, as RM is over the 50-DMA while the price is not. Therefore, if BIIB can clear and close over roughly $212, it would confirm that price and momentum agree and show it's potentially ready for another move higher.
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ETF Summary
- S&P 500 (SPY): 447 did not hold. Now we watch to clear back over or for 441 to hold.
- Russell 2000 (IWM): Needs to hold over 201.
- Dow (DIA): 343 needs to hold.
- Nasdaq (QQQ): 350 support.
- KRE (Regional Banks): 66.81 support could not hold. 65.46 next level to test.
- SMH (Semiconductors): 237 next main support. In choppy area.
- IYT (Transportation): 243-245 support area.
- IBB (Biotechnology): 128 support the 50-DMA.
- XRT (Retail): Like this to get back over 75. If not, watch for 72 area to hold.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
