Here’s What the Market’s Plunge Protection Team Looks Like

Michele Schneider

On August 22nd, I wrote a blog called “Can the Market Live on Canned Rations?

In it I wondered about the threat of the Transportation Sector:

“Transportation IYT, made a new all-time high, but closed beneath 206.90 and the older ATH (all-time high) at 206.73.”

I went on to say, that “Transportation can either blast off from yesterday’s high or put in a very neat double top.”

On 8/22, IYT broke the first line of support at 205.25.

IYT also posted a topping pattern based on a new high followed by a high-volume break of the prior day’s lows.

At that point, I wondered,

“If we are nuclear trading scientists handling volatile materials or markets, what should we have in our survival rations?”

In September I wrote, “Whilst investors hold out their hands to feed the bull, the bull’s crown serves as a cautionary tale.”

Since then, we have looked at the NASDAQ double top, Semiconductors closing under the 50-week moving average for the first time since 11/16, plus, Regional Banks also closing under the 50-WMA for the first time in a year.

More recently, we looked at the divergence between the Russell 2000 and the Dow.

I asked you to think about the higher interest rates and how that would impact your portfolio.

And, as recently as last night, we looked at what the Transportation sector via IYT breaking down meant for the eerily chill bulls.

I do not mean this to be a “I told you so.”

Rather, I prefer to think of this as a lesson for those who thought “generational bottom,” or use a passive investing (buy and hold) style of trading.

àThursday at noon EST, I will be teaching a free webinar withWealth365. Hope to see you there!

With all that said, over the weekend I ended the Daily with, “Commodities-that historically low ratio between equities and commodities”-time to watch for that to reverse.

I’m an optimist. And a commodities trader at heart.

What can we look for now?

The dollar and the rates will continue to factor into commodity prices. And not all commodities are created equal.

s&p 500 index vs commodities cycles buy bullish time periods

For now, the chart shows that the ratio between the SPY and Commodiites flipped to “buy” as of August.

And perhaps that is true.

What I would watch now is the ETF USCI or the US Commodites Index. The price level for that to hold is around 41.85.

Thus far, it is trading inside the trading range for last week.

Should USCI clear 43.25, that could be the start of a much bigger reversal of what has been a ratio that is at a 100-year historical low.

Here are key trading levels across market ETFs:

S&P 500 ETF (SPY) – 276.23 is the 200 DMA. It’s going to come down to this-either we get a huge number of buyers defending that level and some sort of V-bottom formation, or we get a meager bounce-and bye-bye bull market.

Russell 2000 ETF (IWM) – 159.33 is the 50-WMA that this has not been below since May 2016-if we cannot close the week back above, its over folks

Dow Jones Industrials ETF (DIA) – 249.56 is this index’s 50-WMA

Nasdaq 100 ETF (QQQ) – As I said a while back, nobody knows what a double top is until it becomes one-but I am happy I gave you plenty of warnings

Regional Banks ETF (KRE) – Miraculously holding the bottom low of 58.28

Semiconductors ETF (SMH) – 93.87 is a monthly MA this has been above since March 2016. Slope is up so if it hits, could see some buyers there

Transportation ETF (IYT) – A 5-10% correction from the reversal top puts this anywhere between 190 and 180. Most importantly, like SMH, IYT hasn’t closed below the 50-WMA since July 2016, even longer than the SMH. That level comes in at 192.61

Biotechnology ETF (IBB) 112 pivotal or around the 200 DMA-

Retail ETF (XRT)  46.91 the 50-WMA

 

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The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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