After taking a few days off, I saw that the Russell 2000 IWM closed at 164.88 a week ago, marginally hanging onto its 50-Daily Moving Average.
Then, Monday the 10th, IWM had an inside day.
Tuesday, it gapped higher.
Thursday it broke from its 5-day trading range to the upside.
And Friday, IWM sold off, yet maintained an inside day to Thursday’s trading range.
In fact, the Nasdaq 100 and S&P 500 also had inside trading days.
Only the Dow broke last Thursday’s low on Friday, after it had made a new all-time high.
The level of resiliency in the market is in a word-astonishing
Consider:
- The artificial stimulus by the Central Banks,
- The relatively weak earnings quarter with few exceptions,
- The low corporate tax rate which has incentified corporations to continually buy back their own stocks.
- The unknown global effect from the coronavirus,
- The geopolitical unrest throughout the world and technically,
- A few bearish signals from certain cyclical sectors,
- And the top one-The White House’s consideration to offer tax incentives for more Americans to buy stocks.
The bulls have some good arguments.
All one needs to do is see the Central Banks policy, corporate buybacks, and the sidelined cash with nowhere else to go as sound reasons to think the market will never correct.
Heck, even Berkshire Hathaway (NYSE:BRKa) finally threw in the towel and bought S&Ps, Kroger (NYSE:KR) and Biogen (NASDAQ:BIIB) stocks.
Also to consider:
Junk bonds or the ETF JNK recaptured the pivotal 110 level.
The volatility index or VXX reflects very little fear.
Plus, even with the inside day, IWM did close up week to week.
And the government?
Well that’s a first. I remember the Bush administration urging Americans to shop after 9/11.
But that is a far cry from offering tax incentives for those who buy stocks. That is no better than an inexperienced financial planner telling their clients that the market always comes back and never stays down too long.
Is the government planning to reimburse Americans for their losses?
Or do they believe they can overcome any obstacle with market manipulation?
These proposed incentives will be tied to profits only. Not to mention loaded with “read-between-the lines” caveats.
Seriously though, if the government is not going to teach you a trading strategy, then I will do my best to teach you one.
Watch the Russell 2000 IWM and Transportation IYT.
As Geoff wrote last week, “We’ll likely have to wait until next week to see if this breakout is for real. Until then, the key level to hold (in IWM) is 167.”
In Transportation IYT, Friday’s bearish candle and breakdown back into a caution phase gives us two very reliable patterns to watch.
IWM must hold 167 and IYT has to get back over and close above 195.51.
S&P 500 (SPY) Inside day. 335.56 support then 333.42
Russell 2000 (IWM) 167 support and 170.56 the high to clear
Dow (DIA) 292 underlying support
Nasdaq (QQQ) 230.50 support
KRE (Regional Banks) Still in caution phase so must clear 57.01 and stick, hold 56.00
SMH (Semiconductors) 147 support
IYT (Transportation) Unconfirmed caution phase. 195.51 to clear and 195 the 10-DMA to hold.
IBB (Biotechnology) Inside week and reflecting a bullish bias. 123.48 the number to clear
XRT (Retail) Looks better on the weekly chart so has to clear 45.24 on the daily one
Volatility Index (VXX) 14.20 is the first area of interest