We came into today with Transportation (IYT), Retail (XRT), Biotechnology (IBB) and the Russell 2000 (IWM) all having inside weeks.
I do not mean any insult calling a Family of my creation gnomes, but, since the rally today was mythical and perhaps not real, I thought it apt. Yesterday, considering the storm clouds above the market and the Family, we wondered how a lonely wooden house can keep standing in the midst of a storm?
I gave you several ways to track the moves. Let's call it the Gnome scorecard. First, we have the high yield investment grade bonds (LQD) and Junk Bonds (JNK). Second, we look at the price of oil as seen through the ETF US Oil Fund (USO). Third, we see whether four of the six Economic Modern Family, who were in inside weeks, cleared where they had to. Finally, we track our Prodigal Son, Regional Banks (KRE), who was the first to crash and needs to show that it has truly bottomed.
How did our Economic Modern Family mystical gnome scorecard do?
LQD, or High Yield Investment Grade Bonds, cleared the short-term moving average yesterday along with a good resistance level. Apparently, after all the stimulus, there is a rush to get back into them.
Junk Bonds (JNK) also rallied. However, no surprise high-yield investment would do better than JNK, as this has yet to clear its 10-DMA at 91.05.
Oil rallied too. USO cleared Tuesday's high at 5.07. We need to see more stabilization from this sector.
By the end of the day, none of the four gnomes closed above the inside week high they needed to clear:
- Starting with Transportation (IYT), intraday it cleared the range high 138.91. By the end of the day, not so much.
- Biotechnology (IBB) had to clear 104.99. Oops - it did not.
- Retail (XRT) had to clear 30.93. Granny cleared intraday but could not hang on. That is now a key pivotal point.
- The Russell 2000 (IWM) had to clear 111.30. Gramps gave us an early scare, but he made it. However, by the end of the day, IWM gave it up and then some.
Our Regional Banks sector (KRE) held support. However, since this sector is tied to energy, we need to see more. The 10-DMA is at 32.50; that must clear and hold. Furthermore, while the S&P 500 is up around 12% from the lows, KRE is barely up 5%.
About that gnome scorecard?
With lots of happy faces followed by frowns, at this point, it signals this as a bear market rally, not the bottom.
- S&P 500 (SPY): 241 support to hold if good
- Russell 2000 (IWM): 110 pivotal now with 106.90 support
- Dow (DIA): 208 pivotal then 205.75 support
- Nasdaq (QQQ): 179 pivotal with 198 next resistance
- KRE (Regional Banks): 30 support, 33 resistance. 32.50 pivotal
- SMH (Semiconductors): 120 resistance with 108 support
- IYT (Transportation): 130 support and 143 resistance
- IBB (Biotechnology): 104.99 resistance, 99.60 support
- XRT (Retail): 29.40 support and 31.00 resistance
- Volatility Index (VXX) Cleared 50.00 - now pivotal
- Junk Bonds (JNK): 86.67 support with resistance at 91.00
- LQD (iShs iBoxx High yield Bonds): 120 pivotal. 115.60 support and 126 a good place to short if it gets there
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
