The Economic Modern Family – Time to Prune in June?

Now that “sell in May” did not work out so well for the bears, what will June hold for both the bulls and the bears?

Since the price lows that were established in late March, it’s been easy pickings for so many areas of the market. For the Economic Modern Family, money has fallen off the trees. However, many sectors are still markedly down on the year, while NASDAQ is getting closer to making new all-time highs.

Typically, trees mature in June and yield fruit late into the summer season. This tree, though, yielded fruit unseasonably early. Beyond the leaves, we see some dead branches. Is it time to prune them in June?

Looking at the weekly charts at the beginning of the month will hopefully help us consider next steps.

  • At the top left is Granny Retail (XRT). She sits right on the 50-WMA (blue line). 40.00 is key support, but, under 38.00, her money stops falling from the tree.
  • Middle top is Granddad Russell (IWM). 140 is pivotal, but more important is the support at 136, which must hold. With IWM down 15-16% this year, he also needs to clear back over 148.50
  • Top right is Biotechnology (IBB), which is consolidating – neither gathering more cash nor losing it. 136 is a big area to clear.
  • Bottom left is Regional Banks (KRE). The most worrisome of the bunch, he needs to get back over 40.00 and hold above 35.00. He is often the first to signal that pruning is required.
  • Middle bottom is Transportation (IYT). The black line, or around 156, is the root for him. He is another massive underperformer. If he loses that root, a lot of the tree will be in danger.
  • Bottom right is Sister Semiconductors (SMH). She still has a gap from the week it collapsed to fill at 144.96. Plus, in good shape, she must hold above 134.00.

When you look at them all together, the divergence between the economy and the market flyers is most apparent. If this rally has sustenance and can keep the family tree thriving in cash, then this is the week we must see that happen.

  • S&P 500 (SPY): 300 support, 313 resistance
  • Russell 2000 (IWM): 140 is pivotal, but more important is the support at 136
  • Dow (DIA): 263 resistance with 250 support
  • Nasdaq (QQQ): Looks like all-time highs are in the cards (237.47)
  • KRE (Regional Banks): 40 pivotal, 35 key support
  • SMH (Semiconductors): 137.50 support – still has gap to 144.96
  • IYT (Transportation): 156 support, 163 next resistance
  • IBB (Biotechnology): Until it takes out 136, noise
  • XRT (Retail): Holding the 200-DMA
  • Volatility Index (VXX): Inside day – consolidation range

Mish Schneider

Director of Trading Research and Education