Separating the Stock Pickers from the Trend Followers

Michele Schneider

After taking the pulse of key stock market sectors where we saw that many were in bullish phases, today, we see divergences among the key sectors expanding.

The Transportation Sector ETF (NYSEARCA: IYT), for example, has gone from bullish to an unconfirmed Distribution phase. 

The Biotechnology Sector ETF (NASDAQ: IBB), on the other hand, improved back into an unconfirmed Accumulation phase.

And while the other economic Modern Family members have remained in their current phases, this increased divergence is puzzling and a bit troubling.

If the market could talk it might say, “We are concerned about the economy slowing down. We are hopeful that the Federal Reserve cuts the interest rates as a result. 

If that does occur, tech companies will continue to buy back their own stock. However, the meat of the US economy will still have tariffs and a global slowdown to worry about.”

That clears it up for us, doesn’t it?

Tomorrow, the Fed Chair will testify in front of Congress.

What if he had a chart of the Economic Modern Family to refer to?

Top left is IBB. Note how it cleared back over the 200-DMA. That makes 107.90 the key place to hold. Plus, there is lots of resistance to clear.

In the middle top is Regional Banks KRE. That too improved by rising in price above the 50-DMA. A relatively sloppy chart, KRE must clear and hold above 53.70 or the 200-DMA.

Far left is Transportation, the trouble spot. Should IYT fail to clear 185.96 and 186.62 respectively, I’d take that as fair warning. 

Transportation or demand side, has served us well as a precursor to what could happen next.

On the bottom left is Semiconductors. SMH (along with IBB) saw buying. Significant?

As far as sector rotation, good for those who follow the money.

As far as a measure of the US Economy? Not so much.

Bottom middle is brick and mortar retail XRT. Although the price sits above the 50-DMA, the slope is negative on the MA. Until it clears/closes over 43.15, not very impressive.

Then we have Granddad Russell 2000. The price above the 2 MAs keeps it in a bullish phase. That phase though, is weak as both MA slopes are negative.

What might Powell say as he points to the charts?

The S&P 500 is close to the all-time highs. Fortune 500 companies are in good shape. Yet, with real concerns in the supply/demand side of the economy, we are ready to lower by ¼%, but not until we see August’s job numbers.

At least, that’s what I would say.

In the meantime, this scenario separates the good stock pickers from the trend followers.

Make sure you follow someone who has a repeatable process.

S&P 500 (SPY) – 298.82 printed a new all-time high. 297 pivotal and support at 294.95. 

Russell 2000 (IWM) – 154.50 is the major pivotal 50-WMA to hold. 158 and 161 resistance overhead. 

Dow Jones Industrials (DIA) – 269.60 the new all-time high. 267 pivotal.

Nasdaq (QQQ)  – 191.44 the new all-time high. 188.65 support.

KRE (Regional Banks) – 53.75 the 200 DMA now resistance to clear. 

SMH (Semiconductors) – 115.70-116 resistance. Support at 109.22

IYT (Transportation) – 188.50 key to clear again while 186.07 is the key support to hold.

IBB (Biotechnology)  – 109.27 now resistance and 105.30 support.

XRT (Retail) – 42.45 pivotal area-has to close above 43.15. Support at 41.75

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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.

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