On Friday, the Modern Family celebrated like it was New Year’s Eve and the beginning of a new era for the old bull market.
In this new era, Grandpa Russell (IWM) would be followed as a market leader. To prove his new strength, he broke out to 52-week highs despite the larger cap indexes inability to follow suit.
The celebration was so noticeable that Barron’s decorated its cover with the proclamation “Small Caps Break Out”.
Such admiration and attention is rarely a good omen on Wall St.
It’s fair to expect that the biggest partiers (IWM, SMH, and KRE) would take a rest the following day, but today’s action looked more like a hangover than a rest.
KRE closed flat but fell out of bed on the open.
IWM tried to move higher for the first hour, but rolled over and then closed lower than yesterday’s low.
Weeks ago, SMH was a market leader, but as it was revealed in last weekend’s Market Outlook, its underlying strength has been reduced to a sector being held up by the market rather than vice versa.
SMH and IWM closing under their prior day’s low is not a good way to “take a break”.
In short, Friday’s momentum waned too quickly.
If you have our Real Motion indicators, I suggest you look at the divergence pattern on the 5-minute charts of the SPY, QQQ, IWM, and SMH.
If you don’t have Real Motion, I’ll share that the pattern suggests that an Opening Range breakdown tomorrow could lead to more downside.
I’m not the only one concerned.
The VXX closed over its Thursday high. On a different day, that kind of jump would go hand in hand with the SPY dropping 1% or more.
Fortunately, the price action today was slow and steady, not frantic or scared.
As a result, today was NOT a bell ringing at the top (not even close).
It was just disappointing and suggests that if IWM, SPY and QQQ start to slip below their opening ranges tomorrow, they may need a longer rest than a day or two.
If the weakness does continue, and you want to take advantage of it, I’ll be looking shorting SMH or buying VXX.
Nothing here suggests a long-term problem for the bulls.
I’m still bullish, just disappointed that Friday’s momentum ended too quickly.
Be patient.
S&P 500 (SPY) 312.80 or the 10 DMA support. 315.48 the ATH.
Russell 2000 (IWM) 161.10 support 162 pivotal and 163.41 Friday high, new 2019 high.
Dow (DIA) 279.30 the 10 DMA support. 281.91 ATH
Nasdaq (QQQ) 203.66 or the 10 DMA support 206.05 ATH.
KRE (Regional Banks) 56.00 pivotal 57.52 major resistance
SMH (Semiconductors) 132.40 or the 10 DMA support 135.26 ATH
IYT (Transportation) 188.25 key support and if fails, will impact everything. Resistance at 193.55 then 195.
IBB (Biotechnology) 116.30 key support 122.97 the 2018 high
XRT (Retail) 44.15 support 45.41 has to clear next