In the early part of last week, I had the opportunity to conduct an insightful 36-minute interview with Maggie Lake. For those who haven’t had the chance to listen to it, I’ve included it at the conclusion of this article. During this conversation, we delved deep into the current status of the energy sector, where, as Mish aptly put it, it has become an “all hands on deck” situation. According to Mish, there’s a pressing need for every form of energy sourcing in today’s market.
However, amidst this urgent call for diverse energy sources, there’s a growing murmur among pessimists predicting an oil boom that isn’t supported by fundamental changes in the market. Having traded commodities throughout various crises in the Middle East, I’ve learned that the price itself often crafts the overarching narrative of the market.
In keeping with this idea, the Economic Modern Family, a term I use to describe a group of market indicators that include the likes of the Russell 2000, Semiconductor Index, and others, has consistently provided reliable guidance. Recently, they seem to indicate a potential oversight in inflation concerns, which could significantly impact the market.
Taking a closer look at the charts, particularly the Retail Sector and its performance on a weekly basis, offers a clearer understanding. The XRT or Retail ETF remains above its 50-week moving average (WMA), a promising sign provided it maintains above the $75.50 price level. Nonetheless, a dive into the daily chart reveals its underperformance when compared to the benchmark. The significance of maintaining above the 200-day moving average (DMA) is highlighted by corresponding support levels on real motion metrics.
Another sector catching attention is the Semiconductors, demonstrated by the SMH ETF. Its position above the 50-WMA, currently at $240, on the weekly chart, exhibits noteworthy stability. However, it is critical to monitor the industry’s performance closely, as its daily chart shows it stalling at the January 6-month calendar high. This may indicate a turning point, depending on how it navigates through this period until July.
As for the broader Economic Modern Family, various sectors showed mixed responses to their 50-WMA positions. Transportation and Regional Banks struggled, whereas the Biotechnology sector, represented by the IBB ETF, managed an impressive performance. It’s not merely because of my belief in the pharmaceutical industry, especially concerning the development of diet drugs. The IBB ETF outperforming the benchmark and showing improved momentum is a testament to the sector’s potential, particularly if it breaks above the $130 price level or its January 6-month calendar range high.
Looking ahead, there are several key points to monitor:
1. The performance of the Granny Retail (XRT) is crucial. Any significant failure could imply a broader market downturn, impacting the Russell 2000 among others.
2. The Semiconductor sector (SMH) needs close observation. A surge above $260 could indicate robust growth stock performance, whereas stability or a dip below $240 might signal a broader sell-off.
3. The Biotechnology sector (IBB) presents ripe opportunities, showing strong potential for gains amidst the current market corrections.
In the realm of ETFs, notable figures include the S&P 500 (SPY) at 600 as a pivotal level, Russell 2000 (IWM) facing resistance at 215 with pivotal support at 210, and the Dow (DIA) now pivotal at 425. Other sectors like Regional Banks (KRE), Semiconductors (SMH), and Transportation (IYT) show varying levels of support and resistance, demonstrating the nuanced and dynamic nature of the market.
Bitcoin, too, finds its mention with support at 104 and a pivotal point at 107, indicating its continued relevance in the broader financial landscape.
This comprehensive overview serves as a testament to the complex and intertwined nature of our global economic structure. As we navigate through these turbulent times, the insights gained from the Economic Modern Family and sector-specific performances provide a roadmap, highlighting the importance of adaptability and vigilant monitoring of the market.
By now, I hope you listened to the 36-minute interview I did early last week with Maggie Lake.
In case you haven’t, it’s at the bottom of this story.
“[It’s] all hands on deck for energy,” Mish said. “Every source of energy is needed.”
And yet, the bears emerge talking that an oil boom is underway with no real shift in fundamentals.
I’ve traded commodities during Middle East crises-and remember, price dictates the narrative.
With that said, the Economic Modern Family has yet to steer us in the wrong direction.
If , , , , and now are telling us anything about too much inflation complacency, we will see it in the Family.
While the top charts show Retail on a weekly basis, let’s have a close look at the Daily chart because this sector has led and has to stay in the game with geopolitics bubbling up.
XRT on a weekly chart is still above the 50-WMA (blue), provided it holds above the price of $75.50.
On the Daily chart, we can see the gross underperformance against the benchmark. Plus, the support at the 200-DMA and the support on real motion at the same DMA confirm the importance of this level.
The second sector above the 50-week moving average is Semiconductors .
$240 is where the 50-WMA sits on the weekly chart.
On the Daily:
While SMH stopped dead in its tracks at the January 6-month calendar range high (still applicable until the rest in July), both the weekly and the daily charts exemplify the leadership in chip and growth stocks.
The Retail sector can correct and break down, but we would view this as a correction and not a trend reversal UNLESS SMH also breaks down under that $240 level or under the 200-DMA (green line).
As for the rest of the Family:
The () rejected the 50-WMA.
So did Transportation and Regional Banks .
Biotechnology has not been able to clear either the 50 or 200-week moving averages.
Interestingly, though, and why I have talked a lot about this sector on the media is not only because of my belief in the pharma companies making diet drugs, but also because
IBB is outperforming the benchmark ().
Real Motion illustrates momentum improving.
And, price is now in a recuperation phase, above the 50-DMA with the strong relative outperformance telling me, one move above $130 or the January 6-month calendar range, could send this sector higher still.
Putting it differently, Biotech is performing relatively well during this overall market correction and could therefore play some real catch-up when the market stabilizes.
Going into this week, the playbook is:
- Watch Granny Retail-a failure of those key levels, spells more trouble for IWM IYT KRE.
- Watch Semis SMH-if it pulls above $260 follow growth stocks. If it holds $240 buy dips, and if it fails $240 prepare for a bigger sell off.
- Watch IBB-the opportunities in this sector appear to be ripe.
ETF Summary
(Pivotal means short-term bullish above that level and bearish below)
S&P 500 (SPY) 600 so pivotal
Russell 2000 (IWM) 215 resistance 210 pivotal support
Dow (DIA) 425 now pivotal
Nasdaq (QQQ) 528 support
Regional banks (KRE) 55 support 60 resistance
Semiconductors (SMH) 260 pivotal 240 key
Transportation (IYT) 68 resistance 64 support
Biotechnology (IBB) 123 supports 130 resistance
Retail (XRT) 75.50 support, 77 now pivotal resistance
Bitcoin () 104 support 107 pivotal
