Economic Modern Family Has Eyes on Granny Retail

In the world of large cap and tech stocks, Friday was an interesting trading day.

Lots of those stocks touched down on their 50-DMA. To name a few: (JD), Baidu (BIDU), IQ, Netflix (NFLX) and Microsoft (MSFT). With sentiment or risk on/off gauges flashing bearish, these big guns are at make or break points for Monday.

Any of these could leave more distance between them and their 50-DMA. Or, they can easily break them and lead the whole market significantly lower.

After enjoying a week or so of low volatility, the past week ended with fear returning, thereby forcing traders to pay more attention. The dollar declined even further, while the metals – gold, silver, palladium, copper and platinum – held gains or posted more gains. The 20+ Year Treasury Bills also rallied, however right into key resistance. Bonds may not turn out to be the traditional safety play one would expect given the turn up in commodities and the turn down in the greenback.

Also noteworthy is that Junk Bonds (JNK) rallied Friday, closing above the 50-week moving average. This is the best example of “Don’t Fight the Fed!” (especially ahead of the Fed meeting).

Yet, quietly, reliably and clarifyingly, our Economic Modern Family will help us decide what to do this coming week. A week, by the way, with lots of earnings on tap.

Before we get into the Family, I did two sessions for StockCharts TV last week.

My Your Daily Five entry from Wednesday goes into the “Robinhood Traders” and some of the list of stocks they have bought. Plus, I cover the growing megatrend of Socially Conscious Investing.

Then, on Friday, I hosted a Mish’s Market Minute session called “Suffer From Fear of Missing Out?” The segments are as follows:

  • Buying Late to the Party
  • Buying a Falling Knife 
  • Managing a Stop Loss 
  • Managing Profit Targets
  • Deciding on a Trailing Stop

Now back to the Family.

Granny Retail is doing the heavy lifting, which is amazing considering XRT (mainly brick and mortar) has lagged for years.

Granddad Russell 2000 (IWM) failed to close above the 50 and 200-WMAs. I believe it will come down to who is stronger for the whole market. Can XRT drag IWM up, or vice versa?

Big Brother Biotechnology (IBB) proves the harder they are, the harder they fall. However, unless it breaks below the channel line, this is a healthy correction.

Prodigal Son Regional Banks (KRE) gave the market a pass by not breaking down completely. The question now, though, is if can banks hold the recuperation phase and move up further.

Our Tran, Transportation (IYT), touched but could not clear the 50-WMA on a closing basis for the week. But it was an inside week. That means there is a lot of room down, and if Granny and the big gun stocks hold, there’s a potential for it to clear the last 2 weeks’ highs.

Sister Semiconductors (SMH) did exactly what I wrote about a week ago – “The top of the channel comes in at 165-168 serving as resistance… if SMH gets to the top of the channel, cannot clear and begins to turn lower, I would have no issue going short into failed strength.”

It seems relatively simple to me.

Watch Retail. Watch the NASDAQ stocks that retraced to their 50-DMAs. Watch JUNK bonds and the dollar. If they all hang in there, do not get sucked into the headlines. If the dollar falls much further, or any of these others cannot hold, perhaps the punch has truly worn off.

  • S&P 500 (SPY): 320 held and must continue to do so
  • Russell 2000 (IWM): 146 support, 150 resistance
  • Dow (DIA): 270 now resistance, 262.50 support
  • Nasdaq (QQQ): 262 now resistance, with support at 250
  • KRE (Regional Banks): Confirmed recuperation phase. 37.70 the 50-DMA
  • SMH (Semiconductors): 160 pivotal, 155 support
  • IYT (Transportation): 172.75 (the 200-DMA) failed to hold
  • IBB (Biotechnology): Closed at 136, the big support
  • XRT (Retail): 45.00 support, 46 pivotal
  • Volatility Index (VXX): 31.03 resistance
  • Junk Bonds (JNK): Cleared 104.95
  • LQD (iShs iBoxx High-Yield Bonds): Gentle correction

Mish Schneider

Director of Trading Research and Education