Is The Market Falling Into A Rangebound Trap?
Michele Schneider | Jan 16, 2022 03:55AM ET
To get a quick overview of the markets direction, let’s look at Mish’s Economic Modern Family (MF). A short-term look through the daily charts of the MF will inform as to which key sectors are leading the way or falling behind.
The first member is the small-cap index Russell 2000 via the iShares Russell 2000 ETF (NYSE:IWM)). Although IWM has been choppy, it is still holding over major support at $208 showing a neutral stance. Watch for IWM to head back toward the middle of its range near $225 before it hits resistance.
Moving to our weakest members, Retail —SPDR® S&P Retail ETF (NYSE:XRT), and Biotech—iShares Biotechnology ETF (NASDAQ:IBB) sectors continued to trend lower and are grasping to find support. Currently, both are in a bearish phase with the 50-Day moving average under the 200-DMA. Watch for XRT to trade over $88.17 and for IBB to clear $144.07 before these can make a comeback.
On the other hand, the outperforming members are Semiconductors—VanEck Semiconductor ETF (NASDAQ:SMH) and Regional Banking via the SPDR® S&P Regional Banking ETF (NYSE:KRE). If banking companies continue to report well, watch for KRE to hold support at the $75.60 area. However, before SMH can make any meaningful progress, it will need to clear its mini range from $287-318.
The last sector is the Transportation space via the iShares Transportation Average ETF (NYSE:IYT). Sitting between its 50 and 200 DMA, IYT could be showing us that the movement of goods is slowing down or stagnating. If people are expecting the 2022 stock market to push higher, IYT will need to keep its upward momentum instead of drifting sideways.
Currently, we are seeing a possible split in the Modern Family as few are attempting to push to new highs while most are getting stuck in sideways price action like IWM. Even with small breakouts to new highs, if prices revert to their average trading zones, we could be in for a very choppy year. Therefore, watch for trades near the bottom of ranges and remember to quickly get out if the range low is broken.
The last member is Bitcoin which is currently holding over major support from roughly 40k. While it has trended lower with the general stock market, it will be interesting to see if BTC can change directions. If not, like the other Family members, it could fall into a rangebound trap.
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- S&P 500 (SPY) 456.60 support
- Russell 2000 (IWM) 208.76 support
- Dow (DIA) Needs to hold over the 50-DMA at 358.50.
- NASDAQ (QQQ) 369.44 support.
- KRE (Regional Banks) 75.76 support.
- SMH (Semiconductors) Stuck in the middle of its range with 318.82 to clear.
- IYT (Transportation) 263 next support area.
- IBB (Biotechnology) Needs to clear 144.07.
- XRT (Retail) 88.17 to clear.
- Junk Bonds (JNK) More interesting once it clears over the 50-DMA at 108.04.
- SLV (Silver) 21.45 50-DMA to clear.
- USO (US Oil Fund) Minor support from the 10-DMA at 57.09.
- TLT (iShares 20+ Year Treasuries) 141.36 support.
- DBA (Agriculture) 20.00 resistance.
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