In reference to Monday's article, we are watching for signs of a reversal in the major indices based on price and momentum. As a follow-up, we can also look at Mish's Economic Modern Family to see which areas are holding, with strength going into Wednesday's Fed rate hike announcement.
Of the 6 main Family members, surprisingly, the Transportation (IYT) and Retail (XRT) ETFs are holding up the best. In terms of percent gain on the day, IYT and XRT are underperforming when compared to the other members. However, in the above chart, we can see that both are holding over support, while the Russell 2000 (IWM), Regional Banking (KRE), Biotech (IBB), and Semiconductors (SMH) are now clearing or attempting to clear back over support levels that recently failed.
With that said, we can also watch for upside confirmation from a momentum standpoint.
In the above chart, you can see IYT and XRT with our Real Motion indicator (RM) at the bottom. The red dotted line shows RM along with the 50-day (blue) and 200-day (green) moving averages. In the price chart, we also have the 50-DMA and 200-DMA.
One thing we can look for when watching RM is for a positive divergence in momentum and price. This can happen when RM clears the 50-DMA before the symbol does in price. Notice how close RM is to clearing the 50-DMA in XRT. If RM holds, it will likely cross over the 50-DMA before XRT crosses the 50-DMA in price.
Having said that, we should watch for a positive divergence when it comes to both IYT and XRT in momentum, along with price clearing the 50-DMA soon after.
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- S&P 500 (SPY): 414 pivotal.
- Russell 2000 (IWM): Watching 188 to hold.
- Dow (DIA): Support from 322 to 326.
- Nasdaq (QQQ): Watch to hold over 318.
- KRE (Regional Banks): 63.80 resistance.
- SMH (Semiconductors): 225.80 support area.
- IYT (Transportation): 239 support.
- IBB (Biotechnology): Watching for a rally towards 50-DMA at 126 along with general market.
- XRT (Retail): 70 support.
Assistant Director of Trading Research and Education