The Stock Market Is Smug and Chubby

Michele Schneider

Investors have gone from fearful of a recession to fearful of missing out (FOMO) on this rally.

Yet the economic Modern Family sectors suggest that a FOMO environment may not be rational.

Trump’s remarks to the Economic Club of New York earlier today criticized the Federal Reserve for not going closer to zero interest rates and then at the same time touted the strong economy of the United States.

Furthermore, comments on the trade deal with China engendered a response from the China Global Times that Trump “lied.”

That sent the Dow Jones Industrial Average INDEXDJX: .DJI into red territory and took the wind out of the rally sails of the other 3 indices.

Yet even long before Trump’s remarks, the Russell 2000 Index INDEXRUSSELL: RUT has failed to clear last week’s high or break last week’s low.

Despite the S&P 500’s (SPY) journey to another new all-time high, the Russell 2000’s (IWM) inside week makes it the index to watch.

Also, before Trump’s remarks, the Transportation Sector (IYT), perhaps the smartest sector of all, never traded green. 

IYT closed lower by about .65%.

Sure, our sculpture looks all smug and happy, but notice how his hand touches his heart and his eyes are closed.

greedy investor

As far as recession fears, the possibility remains on the table.

Rather than think like an economist though, all one needs to do is watch the key index (IWM) and sectors, Transportation IYT, plus Retail XRT, Regional Banks KRE, Biotechnology IBB, and Semiconductors SMH.

In IWM, the price action range of last week was 157.81-160.46.

A move under 157.81 that cannot recover, means more selling is in store for the overall market.

On the flipside, a move over 160.46 will look a lot better.

As for the other sectors, they also traded within the range of last week.

Based on what I see in the charts, I still go with the probablity of stagflation over recession.

Looking at commodities, gold and gold miners rallied off of support.

DBA, the agricultural ETF and one I have featured many times, cleared the 200-daily moving average.

Sugar futures, a secret weapon indicator of potential inflation rising, also closed green and looks to be basing.

One reason we are not seeing commodities at even higher prices has to do with the strong U.S. dollar and the rise in yields these last few weeks.

However, if I may be so bold, the dollar looks like it could be topping. 

The Fed has already suggested that it would consider lowering rates again should the trade war take more of a toll on the economy (The Modern Family.)

Put that all together and you have a few instruments to watch carefully. 

  • The Dollar.
  • The Rates.
  • The gold miners (often leads the metals up).
  • Sugar futures.
  • The economic Modern Family.

There’s my roadmap for the end of 2019 and into 2020.

If the stock market does indeed roll over, our smug and chubby figure will clutch his heart and open his eyes.

S&P 500 (SPY) 307 support. All-time high 309.99. 

Russell 2000 (IWM) 155-156 Key support 158 pivotal 160.46 resistance. 

Dow Jones Industrials (DIA) Made a new all-time high at 278.05 last week. 275 now nearest support

Nasdaq (QQQ) All-time highs at 202.21. 199.75 support. 

KRE (Regional Banks) 55.74 July high now pivotal support 57.52 next resistance.

SMH (Semiconductors) 134.28 all-time high. Breakaway gap intact if holds 130.

IYT (Transportation) 195 support and must clear 200.42 next.

IBB (Biotechnology) 109 nearest support.

XRT (Retail) 43.92 now the pivotal support. 45.68 May high. 

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.