Over the last week, we heard from the chair of the Federal Reserve Jerome Powell address worries over the recent 5.4% year-over-year inflation increase. While the Fed continues to hold an accommodative stance with its bond-buying program, some are doubting whether the Fed is taking inflation seriously.
So far, the Fed continues to look at inflation from a transitory side and expects it to run hot for a while as bottlenecks and supply-chain issues get resolved. However, prices change in consumer staples, and in general, tend to be sticky.
This could be what was causing market stress as last week’s price action was unpredictable with new highs in the S&P 500 and the NASDAQ 100 followed by 2 down days.
With that said, we are watching specific sectors in the market to hold recent lows as they could be showing pivotal areas the market needs to hold if Monday’s market continues to lower.
To jump right in, the Transportation (IYT), Retail (XRT), and Regional Banking sectors (KRE) all had roughly the same chart pattern with a recent low created on July 8.
Come Monday, this low will need to hold if they are going to stand their ground. Both the transportation and retail sectors are important, for they show sentiment in the demand and supply side of the market.
Additionally, regional and big banks kicked off this quarter’s earnings. Although the expectations for robust earnings were met, the banks for the most part, could not hold onto gains. This could very well be the theme for the earnings in big tech, coming up very soon.
The market is forward thinking. Big expectations are most likely already priced in.
The third quarter may disappoint as labor is still a concern along with slower economic growth following the surge post COVID. And, COVID has not exactly gone back into the closet either with surges in cases all over the globe.
The small-cap index Russell 2000 (IWM) is another focus. IWM has been rangebound since the beginning of the year and is now close to the lower edge of its range around $208 - 211.50. This is the main support to hold besides the 200-Day moving average coming in at $206.46.
The market is heading into a week of reckoning. Either these support levels hold up, or we could be looking at a bigger correction. Certainly, the long treasury bonds are flashing caution as well, with yields continuing to fall.
ETF Summary
- S&P 500 (SPY) 427 support area.
- Russell 2000 (IWM) 211.50 next support.
- Dow (DIA) 341.53 next support.
- NASDAQ (QQQ) 354.42 next support area.
- KRE (Regional Banks) 61.24 support recent low.
- SMH (Semiconductors) Watching to confirm caution phase with second close under the 50-DMA at 247.95.
- IYT (Transportation) 251.78 support.
- IBB (Biotechnology) 156.50 support area from 50-DMA. Like to see 158.60 level hold.
- XRT (Retail) 99.24 main resistance. 91.71 main support.
- Junk Bonds (JNK) Sitting on support from 6/11.
- XLU (Utilities) 66.86 resistance from recent high.
- SLV (Silver) Needs to hold over 23.75.
- VBK (Small Cap Growth ETF) Confirmed cautionary phase.
- TLT (iShares 20+ Year Treasuries) Confirmed accumulation phase.
- USD (Dollar) 91.40 support area. 93.44 resistance.
- DBA (Agriculture) Needs to close over the 50-DMA at 18.44
- GLD (GoldTrust) Watching to clear 50-DMA at 171.95.
- TAN (Solar Energy) Barely holding over the 50-DMA at 80.45.
- USO (US Oil Fund) 48.22 recent support.
- XME (S&P Metals and Mining) Broke support from 41.05