The Market Breaks Its Legs

Winsor McCay 1905

Those who have read the Daily for a while know that I created the economic Modern Family years ago.

The one index, Russell 2000 IWM, and five market sectors, Transportation IYT, Semiconductors SMH, Retail XRT, Regional Banks KRE and Biotechnology IBB were chosen for very specific reasons.

If you would like to learn more about who they are and why they were chosen, please see the link at the end of the commentary.

To see how money rotates among the Family and how one can lead or lag, but that eventually all must catch up, I would study the recent progression of KRE.

On September 12th, it was first to go into a Distribution Phase (link to article on phases at the end of the commentary.)

Then, the week of September 28th, it broke below the 50-week moving average.

Finally, it was the first to break the 23-month moving average this month.

Will it be the first one to test the 200-week moving average, what institutional investors consider the holy grail of averages?

And if so, what can we expect from the rest of the Family and the overall market?

Today, Semiconductors, Biotechnology, Transportation and the Russell 2000 followed KRE below their 23-month moving averages.

And, the S&P 500, NASDAQ 100 and the Dow all broke their 50-weekly moving averages.

Retail XRT, in the best shape relative to the monthly MA, is still far from it (44.50).

Is there good news?

Biotechnology IBB broke the 200-week moving average-the first one in the Family to do that. This makes sense because the public tends to buy the highs and sell the lows.

But I am not sure I’d say that’s good news. The selling can accelerate as today fear finally hit the market.

Perhaps if IBB recaptures 104.68 by the end of the week, that will be good news

Folks are now expecting the rates to fall in reaction to this market action. Even with Trump’s angst about Powell, the Fed will play a dangerous game if they fold to the pressure.

Plus, the strong dollar, which has held up because the US is still doing better than any other country, may eventually give up the gains.

And oil USO, prices fell again. Yet, prices are still above the 200-week moving average having reversed a 4-year downtrend.

Til any of these 3 points change-these are the key macro points to watch for.

Stagflation looks more likely now. Regardless, I really hope that my readers are safe and have followed the warnings I have written about since the beginning of September.

S&P 500 (SPY) If this closes the week under 274.46, it will be the first breach of the 50-week MA since March 2016. 257.83 the 23-month MA.

Russell 2000 (IWM) Only if this closes the month over 150 will it look better longer-term.

Dow (DIA) If this closes the week under 250.11, it will be the first breach of the 50-week MA since March 2016. 231.91 the 23-month MA.

Nasdaq (QQQ) Broke 169.41 its 50-week MA. If cannot get back above by the end of the week, will be first close under since July 2016. 153.56 the 23-month MA.

KRE (Regional Banks) 49.58 the 200-week MA

SMH (Semiconductors) Only if this closes the month over 93.55 will it look better longer-term.

IYT (Transportation) Only if this closes the month over 180.60 will it look better longer-term.

IBB (Biotechnology) Only if this closes the month over 105.87 will it look better longer-term.

XRT (Retail) The only Family member above the 23-month MA support at 44.50