The market feels like it’s nearing an important point in time and price… and price and value.
Let’s review our trading levels for Thursday September 27 before we get into major themes and analysis for the rest of the week.
S&P 500 (SPY) 291.00 is the fast MA and now the place to clear.
Russell 2000 (IWM) 169.22 the pivotal 50 DMA which must clear or this confirms the warning phase. A weekly close under 167.22 bad.
Dow Jones Industrials (DIA) Topping pattern confirmed with some volume. 263.50 the fast MA pivotal
Nasdaq (QQQ) 183.40 pivotal support which if fails along with the other indices weak, trouble
Regional Banks (KRE) Under the 50-week MA, first time since a year ago
Semiconductors (SMH) Warning Phase-a weekly close under 104.25 a first since 2016-this is what keeps me up at night
Transportation (IYT) 206.80 fast MA resistance. A move under 202 or the 50 DMA not great
Biotechnology (IBB) 120 support to hold-but unless this takes out the recent swing high, this was just a bounce.
Retail (XRT) Unless this opens up over 51.40 and clears 51.80, watch the weekly MA which comes up next or around 50.15
Market’s Price of Everything and Value of Nothing
The real quote is, “nowadays people know the price of everything and the value of nothing.”
Oscar Wilde, immortalized in bronze, waits for the rain to stop.
Value has little to do with price. And vice versa.
In the case of the market and particularly commodities, that is especially true.
A commodity’s price when cheap, might bring in value buyers.
But, should that commodity rise in demand, the price becomes irrelevant.
Buyers will pay up because the perception of its value has shifted.
The market’s value and its price are at a critical inflection point.
While some see it as cheap relative to the value, others see it as rich, or overvalued. Didn’t Powell say that today?
Investors have a basket of tools to use to help determine whether the market is cheap or overpriced.
Lately, we have looked at the price of the US dollar, the level of interest rates, the equilibrium between supply and demand, and how commodities or inflation numbers factor in.
If the market is Oscar Wilde, and the rain represents factors beyond our control, what can we say is current price versus value?
After the Federal Reserve announced the rate hike, the reaction was fairly muted.
The TLTs, talk about an inflection point, sit slightly above critical support levels.
From here, we either see another huge shift up in the yields, or a relief rally causing the yields to drop.
The dollar has a similar scenario. As measured by UUP, the weekly chart indicates more upside, unless the price breaks below 24.80.
Looking at supply and demand, we go to the Russell 2000 (IWM) as representative of supply and Transportation (IYT) representative of demand.
IWM went into an unconfirmed warning phase. Not only could that spell trouble for the overall economy, but could also imply that supply has diminished in value.
However, IYT rose today, implying demand remains stable.
Commodities, most still near record low prices, didn’t move very much.
In fact, inflation appears more like deflation, especially in the grains, metals and softs like coffee and sugar.
Here is where the inflection point comes in to play.
If the yields consolidate or head lower, while the dollar rises, that could help the small caps or supply.
Certainly, commodity prices can get cheaper. Then the balance becomes the dance between deflation or slowing global growth.
However, if yields rise from here and the dollar drops, we might see demand impacted through transportation.
That will be good for commodity prices. Yet, a dollar that buys less, should be negative for equities.
Lots of traders celebrated the rise in FANG stocks today. I find that short-sided when you have the Russells flip into warning.
A rise in Facebook prices has nothing to do with the aforementioned factors.
The market and especially the small caps, need to hold. So do the Banks, Transportation, and Semiconductors.
KRE or Regional Banks are in a Distribution phase.
Therefore, until we can more clearly see the trend among the rates, dollar, commodities and supply/demand, like Oscar, hang out on the bench and wait for the rain to clear.
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.
