I expected a 5-10% rally off the lows. What I did not expect was for it to happen in one day.
However, the bigger question now is, is there more?
Fundamentally, the problems are still very much problems. Italy's death rate continues to spiral. India shut down. The S&P Global Ratings downgraded Delta Airlines to junk. Unemployment and bankruptcies are swelling. The oil crisis is still a crisis with a potential sea change should other countries follow Italy in closing down petrol stations. The rate of change of those infected and dying in the US is surging.
So, how can a solitary wooden house keep standing in the midst of a storm?
Last night, we examined KRE, the Regional Bank ETF and our Prodigal Son. We noted that "[i]t stands to reason that if the Prodigal Son lives up to his reputation, as the first one to signal excessive lavishness, he should be the first one to find forgiveness and bottom out."
We also noted that the Russell 2000 held last week's low, as well as the Transportation (IYT), Semiconductors (SMH; also on the 200-WMA) and Granny Retail (XRT).
Today, all cooperated with KRE managing to close above 31.00, a key level of resistance. Furthermore, LQD or High Yield Investment Grade Bonds cleared a short-term moving average, but with a lot more resistance overhead.
Junk Bonds (JNK) also rallied, but, other than trading back inside last week's trading range, it remains far from clearing its short-term moving average.
Oil rallied too, but it was basically nothing more than an anemic one for now.
What we have is mixed signals, yet happily with a solid technical indicator to look at.
Transportation (IYT), Retail (XRT), Biotechnology (IBB) and the Russell 2000 (IWM) are all having inside weeks. What we do not know, yet, is whether these four essential economic modern family members will clear last week's highs or not.
In addition to the credit markets and oil, this gives us yet another very valuable gauge to watch - which way, if any, these instruments break that range.
- S&P 500 (SPY): Ok bulls - not an accumulation day in volume - not over the 10-DMA at 247. 230 now support
- Russell 2000 (IWM): Inside week range - 95.69-111.30
- Dow (DIA): Not an accumulation day in volume - not over the 10-DMA at 208 now support 192
- Nasdaq (QQQ): 179 pivotal with 198 next resistance
- KRE (Regional Banks): 30 support, 33 resistance
- SMH (Semiconductors): 120 resistance with 109 support
- IYT (Transportation): Inside week range - 116.61-138.91
- IBB (Biotechnology): Inside week range - 92.15-104.99
- XRT (Retail): Inside week range - 26.40-30.93
- Volatility Index (VXX): Closed down less than the Dow closed up. 40.00 new support.
- Junk Bonds (JNK): 86.67 support with resistance at 92.00
- LQD (iShs iBoxx High yield Bonds): 115.75 pivotal support. 120 resistance
Director of Trading Research and Education