Market Update: Fresh Supply Limited While Demand High

As we begin the shortened week, three of the four stock market indices are in accumulation phases on the daily charts. This means they have cleared their 200 day moving averages.

The remaining holdout?

Granddad Russell 2000 (IWM).

Last week I made a prediction:

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“If the Russell 2000 IWM reaches 157.00, that could be it for this rally.

And if it cannot get there, watch Transportation to hold or fail 189.74.”

Today’s high on the small cap stocks Russell 2000 ETF (IWM) is 157.10.

The Transportation Sector ETF (IYT) held 189.74, and it traded well above its 200-DMA at 190.21 intraday.

Now, if IWM does clear 157 (it tried to intraday), then what’s next?

Last week, we surmised that if IYT stays robust and IWM clears 157, we could see 200 and 160 respectively.

The 200-DMA is above at 157.97. Furthermore, the November 8th swing high was 157.90.

However, in equities, what we see is very few new and fresh long positions at these high and risky levels.

Even if IWM catches up, as the best measure of supply, it’s underperformance could mean a lack thereof.

And since IYT is the best measure of demand, if demand outpaces supply, what happens?

Now add low interest rates and the possibility of further declines in the U.S. Dollar.

Plus, add the rally in the metals and yes, my favorite early warning indicator, sugar, and what do you get?

An equity dog’s sensitive nose digging around the dirty laundry, while in the clean clothes basket, there is the freshly washed aroma of inflation.

S&P 500 (SPY) – 276.40 is the important support to hold on a closing basis

Russell 2000 (IWM) – 157 is the 50-WMA and 157.97 the 200-DMA. Can it clear? If not, you have a plan.

Dow Industrials (DIA) – 258.00 support. And if closes below this Wednesday, expect to see more selling

Nasdaq (QQQ) – 171.94 the 200-DMA now the level to hold.

KRE (Regional Banks) – 56 pivotal.

SMH (Semiconductors) – 102 is the immediate area to hold. If it cannot, then 100.92 key pivotal area on weekly chart.

IYT (Transportation) – 189.71 pivotal point. Plus, this cleared the 200-DMA so that makes 190.21 the first place to look

IBB (Biotechnology) – 109.92 the pivotal point. 112.60 resistance

XRT (Retail) – 44.67 pivotal for the week. 46 resistance


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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.