Stock Market Setting Up For An Action-Reaction Collision

Stocks ended the week with a move higher. But not all market indices and sectors followed along.

Let’s review key price levels on the major stock market index ETFs, along with this weekend’s market theme.

S&P 500 (NYSEARCA: SPY) 282 pivotal support. A failure to hold will bring in sellers. 285 resistance

Russell 2000 (NYSEARCA: IWM) Unconfirmed warning phase with 166.39 the 50 DMA pivotal area.

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

Dow (NYSEARCA: DIA) 252.70 pivotal support with 256.75 overhead resistance

Nasdaq (NASDAQ: QQQ) 182.65 the next resistance to clear with support at 177.75 then the 50 DMA at 175.62

The men in the rowboat below are rowing in opposite directions.

Great juxtaposition and one that represents an accurate metaphor for last week’s market.

stock market under current
Will Dubby Fuqua-Sculptor From the Arnold Lieberman Collection. Photo by Michele Schneider

Newton had a theory for that called the Law of Action-Reaction.

“… in every interaction, there is a pair of forces acting on the two interacting objects. The size of the force on the first object equals the size of the force on the second object. The direction of the force on the first object is opposite to the direction of the force on the second object.”

When a collision happens between two equal and opposite forces, one object gains in momentum, while the other object loses momentum.

Certain stocks, namely Apple (AAPL), gained in momentum, setting a record for market cap and new 2018 highs.

Some other stocks seriously lost momentum.

For example, many casino stocks, particularly Wynn Resorts (WYNN), made new 2018 lows.

Elsewhere, the market failed to see any great momentum in most of the indices.

Nevertheless, it does appear that NASDAQ 100 and the Russell 2000 are currently rowing in opposite directions.

Although not as dramatic as the juxtaposition of AAPL and WYNN, the Modern Family also had some equal and opposing reactions.

As we head into this week, what might get everyone to row in the same direction?

So many analysts make interpreting the market way more difficult than it needs to be.

If we throw the most salient sectors into a rowboat, who emerges as the leader in momentum?

Last week I wrote a lot about brick and mortar retail or the ETF XRT.

While we watch how NASDAQ (QQQ) and the Russell’s (IWM) row to gain or lose momentum, Retail is key.

If XRT gains against say, Semiconductors (SMH), that could be one way to get the entire Modern Family rowing in the same direction.

XRT over 50.00, should send it to 51.00. From there, we are in new high territory.

After a gorgeous double bottom at 38, and a golden cross on the weekly chart, a breakout over the previous all-time high could send XRT up into the 60’s.

If that happens, the market will have earned itself a crew!

If XRT fails to make that happen (I’m giving it a good chance it won’t fail), then the leader in momentum lost will most likely turn out to be Semiconductors (SMH).

Or Regional Banks (KRE.)

Semiconductors have done their job beginning in 2012. While SMH made new highs in 2018 and has since retreated, I would go there to short if the market rolls over.

Regional Banks are tied to interest rates. That means, if KRE fails 60.00, the momentum on banks shifts lower. But it also means that rates are not rising as much. Which of course will have other implications-but I’ll get to that another time.

So, prepare for an action-reaction collision between XRT and SMH, as well as one between QQQ and IWM.

And make sure you are not rowing into the wind.

I will be on vacation and return August 20th. Geoff Bysshe, President of MarketGauge, will be writing the Daily in my absence.

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.