Structural Cracks in the U.S. Equities Market

Michele Schneider

As the S&P 500 Index INDEXSP: .INX, Dow Jones Industrials INDEXDJX: .DJI and NASDAQ INDEXNASDAQ: .IXIC keep roaring to new highs, the disconnect not only among the market sectors, but also among the world’s populace, keeps expanding.

Yet, in an almost surreal way, tech and fortune 500 stocks keep running up.

Meanwhile, the civil unrest we see happening on the streets of the world versus the insulation of those in their ivory towers is like the original adobe houses we see in Santa Fe.

They are highly valuable despite the cracks in the walls.

Recently, unrest has sprouted all around the world. 

Hong Kong, Lebanon, Chile, Catalonia, Iraq, Venezuela, Ecuador, Peru, to name a few, headline the list.

Issues cited for riots include a stagnating middle class, stifled democracy, and an idealistic belief that things can be different.

The younger generations are out protesting about the ramifications of climate change.

Currently, the world’s richest 26 people own as much wealth as the poorest half of the world’s population.

But in the 21st century, there is no Bastille to storm. 

The riots may be increasing, but unlike the 1960’s, no real leaders of the disenfranchised have emerged.

In the stock market, I have created characters that represent the cyclicals and non-cyclicals of the U.S. Economy. 

This economic Modern Family mirrors the disconnect we see around the world. 

Let’s check in on their progress or lack thereof this week.

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As advances in technology and productivity continue, a lot of those gains are going to the top or the wealthiest, bypassing the lower and middle classes.

All one has to do is look at the chart of Semiconductors versus the charts of the small caps, transportation and brick and mortar retail. 

The mirror image of the world’s discourse is remarkable. 

Beginning at top left, the Russell 2000 IWM, closed DOWN week to week. DOWN! Let that absorb in your bullish brains. 

Plus, the April highs stand above as a reminder of the weakness in the manufacturing sector.

Middle left is Regional Banks KRE. 

Look at the inside week. Meh.

Far right is Transportation IYT. This too had an inside week. Another meh!

Bottom left is Retail XRT. It did not have an inside week, yet it did not clear the prior week’s high either. Meh!

Bottom middle is Biotechnology IBB. This closed higher. Cyclical or non-cyclical? A little of both. 

Health care costs have exploded. The opioid crisis has gotten fewer headlines. IBB is economically cyclical in that companies will provide healthcare in good times. It is economically non-cyclical in that no matter what the economy is doing, people need their medication.

Bottom line, even with the upward move, still far from the April highs. Meh!

Finally, there is our very rich, insulated technology sister Semiconductors SMH. Notch another new all-time high on her Wonder Woman belt. 

SMH rose to 135.26, ultimately closing near the intraday lows. Warning? Meh for now!

Adobe houses, once affordable, have become the purview of the wealthy. 

But with enough cracks, they too can crumble.

S&P 500 (SPY) 308.60 support. All-time high 311.84. 

Russell 2000 (IWM) 155-156 Key support 157.75. 160.46 resistance. 

Dow Jones Industrials (DIA) A small gap up to a new all-time high at 279.95. 276.90 now nearest support

Nasdaq (QQQ) All-time highs at 202.80. 200.90 support. 

KRE (Regional Banks) 55.55 pivotal support 57.52 next resistance.

SMH (Semiconductors) 135.26 all-time high. Breakaway gap intact if holds 130.

IYT (Transportation) 195 pivotal 194 some support and must clear 200.42

IBB (Biotechnology) 108.75 support. 115 major resistance.

XRT (Retail) 44.30 pivotal. 45.68 resistance.

Twitter: @marketminute

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.