A Market Restrained: What’s Next For Stocks?

Stocks faded throughout the day on Monday and now face a bit of a short-term test tomorrow.

Before we get into our market theme and trend / health analysis, let’s review key levels across the major stock market indices and ETFs:

S&P 500 (SPY) – 289.50 pivotal area which means above good, below expect a test of 285 the 50 DMA

Russell 2000 (IWM) – 170 still pivotal with 168.90 (50 DMA) a tad to close for comfort

Dow Jones Industrials (DIA) – 259-260 support to hold.

Nasdaq (QQQ) – This is the index still working off a reversal topping pattern after making new highs 3 weeks ago. The 50 DMA is at 181.

KRE (Regional Banks) – 61.26 the 50-week MA-and a key for the end of this week

SMH (Semiconductors) – Unconfirmed warning phase. In a week this went from bullish to warning to distribution, back to warning and then bullish. Starts this week back to unconfirmed warning. 104.05 the big swing area for the end of the week with the overhead 50 DMA at 106.38 pivotal resistance now

Transportation (IYT) – 206.90 pivotal area. If fails to clear, 203 next big support

Biotechnology (IBB) – Confirmed warning phase with 117.83 resistance and 115 next support.

Retail (XRT) – 51.80 a good spot for this to recapture. The 50 DMA below is at 50.77

Hoop dancers take small steps yet vary in the speed of their movements.

The hoops themselves represent the never-ending cycle of life. Furthermore, they are meant to remind us that we are all connected.

Thus, the market began the week in its seemingly never-ending cycle of red to green, then green to red.

Like the hoop dancers, the market is taking small steps yet varying in the speed of how it moves.

Today, our Sister Semiconductors, which had a crazy week switching phases last week, began once again switching phases.

SMH ended last week in an unconfirmed bullish phase. SMH ended today back in an unconfirmed warning phase.

Each phase change takes a small step.

Each phase change varies in its speed of change.

How does each phase change remind us that the Modern Family sectors are all connected?

Should SMH confirm the warning phase, meaning it closes a second day under the 50 daily moving average, we will have to count on her siblings to take over the dance.

That is where Transportation (IYT) the sector leader last week comes in.

IYT made new all-time highs last week.

Hoop dancing, IYT rallied to new highs only to sell off on June 12, August 7, 21, and now 9/14.

I have written about the reversal topping candles each time IYT has done that. And each time, buyers swoop in and take the sector back up.

The Russell 2000 (IWM) behaved similarly, making new ATHs August 31st.

The difference is, IWM has not sprung back, and sits awfully close to the 50 DMA at 168.90.

To keep the cycle of life more on the alive side rather than the wilting or warning side, we need those buyers to come back in IYT.

That will help SMH and IWM-plus, the whole market.

If IYT fails to get new buying interest, perhaps this time, we can expect the cycle to turn a lot more negative before it can turn positive again.

Note that you can get daily trading ideas and market insights over on Market Gauge.  Thanks for reading.

Twitter:  @marketminute

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.

Sign up for our FREE newsletter
and receive our best trading ideas and research