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Reflections After The Market Plunge

By Tim KnightStock MarketsJul 20, 2021 12:58AM ET
www.investing.com/analysis/reflections-after-the-market-plunge-200592367
Reflections After The Market Plunge
By Tim Knight   |  Jul 20, 2021 12:58AM ET
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Days like Monday are bittersweet. It’s great fun watching one’s account value roar higher [if you're shorting], but at the same time, you know it’s going to be all over way too soon, and things will get dull and listless again. It takes a lot of patience to finally wallow around in a day like this. Now we have to deal with the stupid bounceback.

Let’s look at ETFs to get the lay of the land. The Dow 30, via the SPDR® Dow Jones Industrial Average ETF Trust (NYSE:DIA), is still rangebound.

DIA Chart
DIA Chart

Its brother, iShares Transportation Average ETF (NYSE:IYT) however, the Transports fund, has completed a huge topping pattern. So, yeah, put a fork in it.

IYT Chart
IYT Chart

Of course, the only asset gaining value yesterday was bonds, below, via iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), and on huge volume. I have been pointing out the change in trend for many weeks, but I had no hope that we would absolutely pole-vault over the trendline. The 40 year bull market in bonds is clearly intact, because The Fed Has No Alternative.

TLT Chart
TLT Chart

Thus, with interest rates crumbling away, the banks, via SPDR® S&P Bank ETF (NYSE:KBE), below, have also completed a monstrous top. And I can’t think of any group on the planet more deserving of plunging stock prices than the banks.

KBE Chart
KBE Chart

This is reflected in the Financial Select Sector SPDR® Fund (NYSE:XLF) too, of course, although it’s going to take a failure of that lower horizontal to really light this bottle rocket.

XLF Chart
XLF Chart

The biggest loser yesterday, as you know, was oil, via United States Oil Fund, LP (NYSE:USO), below, which got totally firebombed with the OPEC+ announcement. It might bounce, and bounce big, but the die is cast. That horizontal line is going to be a lead wall.

USO Chart
USO Chart

And the same words apply to the energy stocks, via Energy Select Sector SPDR® Fund (NYSE:XLE).

XLE Chart
XLE Chart

Materials, via Materials Select Sector SPDR® Fund (NYSE:XLB), have the same well-formed price gap that just about every other financial instrument in the universe received yesterday. This will be a vital demarcation for short positions.

XLB Chart
XLB Chart

One of my (many) positions is puts on the iShares MSCI EAFE ETF (NYSE:EFA), but the gap is meaningless here, since, as an overseas underlying, almost every single day is a gap.

EFA Chart
EFA Chart

Perhaps the most important chart of all is the small caps, via iShares Russell 2000 ETF (NYSE:IWM), which reached the lower echelon of its 2021 range on Monday, and on hearty volume.

IWM Chart
IWM Chart

Gold got beaten down early in the session, but to its credit, SPDR® Gold Shares (NYSE:GLD) held its own quite well. C’mon, gold! You can do this!

GLD Chart
GLD Chart

Next week there's an absolute tidal wave of tech learnings, which should help inform Invesco QQQ Trust (NASDAQ:QQQ) direction. As for now, the short-term trendline is broken.

QQQ Chart
QQQ Chart

Finally, the MidCaps, via SPDR® S&P MIDCAP 400 ETF Trust (NYSE:MDY), finished up a squeaky-clean right triangle pattern.

MDY Chart
MDY Chart

I hope you folks had a profitable Monday. Just to say once again, I exited my short-term positions early Monday, but I am steadfast in all my others, bounce or no bounce.

Reflections After The Market Plunge
 

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Reflections After The Market Plunge

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Comments (3)
Chris Poulos
Chris Poulos Jul 20, 2021 2:31AM ET
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probably not going to be any meaningful corrections (with follow through) until the fed & other central banks ACTUALLY start to raise rates.
Habyb Olawale
Habyb Olawale Jul 20, 2021 2:23AM ET
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Bear season i call it lol… Just getting started!!! Sentiment is one part in financial market that has high volality…
Fabio falec
falec Jul 20, 2021 2:23AM ET
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People calling tops here, very funny
William Bailey
William Bailey Jul 20, 2021 1:10AM ET
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Its just starting!!
 
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