Look for a Stock Market Bottom at These Price Levels

The 4 day stock market correction has happened fast.

Or should we say, is happening fast. Recall the old investing adage, “risk happens fast”.

All but one of our key stock market ETFs (the “modern economic family”) are trading under both their 50 and 200-day moving average.

That lone ETF, the Semiconductors ETF NYSEARCA: SMH moved into a warning phase today, which means it’s trading over its 200 day moving average but under its 50 day moving average. This is a similar situation to the S&P 500 ETF NYSEARCA: SPY

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So with these key price levels of support all in the rearview mirror, what consistent framework can we look at to measure the stock market and our economic family of ETFs?

First, the weekly phases.

These are not as gloomy, but they still leave plenty of room for the markets to move lower before major support levels are reached.

For example, the 200-week moving average is another 6% lower in the Russell 2000 ETF NYSEARCA: IWM and 21% lower in the SMH.

Click here to get another consistent framework to measure the strength of the market.

A second way to judge whether the markets and the Modern Family are all marching in the same direction is to look at their ranges.

As it turns out, 2019 has some very good relative range points. Two that stand out are the May swing lows created by the market correction at that time, and the January lows.

The January lows this year are also the year-to-date (YTD) lows, and therefore, they are a very important psychological level that the markets will react to.

For example, note how the Retail Sector ETF (XRT) which bottomed in May at its January low, is currently trying to hold that level again.

New YTD lows are very bearish!

It’s not surprising that XRT will likely be the first to fall int the red for the year, but more importantly, this is consistent metric we can judge each Modern Family member by.

However, before we have to worry about the YTD levels, we should take note of how many members are trading under their May lows.

So far, none.

However, IWM, KRE (Banks ETF), and XRT are all close, so I’ll be watching these closely.

The bad news is that they are down that low, but the good news could be that they are near support.

If you look at the weekly charts over the last 2-3 years, the they look more like wide ranges than trends.

If you view the markets as “range-bound”, then as long as the Modern Family members can find support at their May lows, we can build a case for expecting the stock market to bottom.

However, if the May lows get broken, the trend to the downside will likely challenge the January lows.

 S&P 500 (SPY) Big support area is 280 to 278.70 (the 200 DMA). 

Russell 2000 (IWM) Next big support is 145.

Dow Jones Industrials (DIA) Stopped at the 200 DMA. Next support levels are 252.50 and 247.

Nasdaq (QQQ) Stopped at a trendline from the December 2018 low. Big support under the trendline is the 200 DMA at 175.65.

KRE (Regional Banks) Held monthly range support at 50.

SMH (Semiconductors) Closed under110 was the top of a big support level and the 50 DMA. So a move over 110 will be interesting. 200 DMA is 102.40. 

IYT (Transportation) Stopped at logical support level around 180. Next support is 175. 

IBB (Biotechnology) 101 is big support. Big resistance around 105. 

XRT (Retail) Stopped at it’s May swing low. Closed in the top half of its range. Major resistance around 42.

Geoff Bysshe is filling in for Mish until August 24th.

Twitter:  @marketminute

The author 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.