Precarious Action in the Bonds and Stock Market

It’s been a wild ride on Wall Street this week, with stocks swinging wildly both ways before ending the week slightly lower overall.

CPI data shows that inflation is entrenched in the economy, depressing real household incomes and causing significant concerns for businesses.

This year also questions historical connections and market wisdom.

For example, the broadening that the market experienced last Thursday brought out the “historians”.

Analysts and researchers claimed that double market pushes always preceded positive returns. Always, right?

This is exactly why we have the Economic Modern Family, as each member has some very interesting analysis (and to us, much more reliable than number crunching) to explore.

In addition to the family, which we will analyze in a moment,

Here are three things to watch next week:

  1. The VIX is still elevated. The VIX, a measure of market volatility, rose to 33 on Tuesday — its highest level since February 2018. Although it has declined slightly since then, it’s still at 32.
  2. All but two of the Modern Family members are in weekly distribution phases. One is in a caution phase and the other in a bearish phase. All are still above their 6-7 year business cycle despite testing the lows. We find this fascinating and quite central. (Recent media clips go into more detail on this).
  3. Long bonds (TLTs) continue to be under severe pressure. 2-year and 10-year government bond yields continue to rise.
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major stock market etfs trading price signals bear market chart

A closer look at the top stock market ETFs…

Above right is the weekly chart of grandma retail XRT.

Retail sales were flat last week. This is a worrying sign for the economy as consumer spending accounts for a large portion of GDP. Technically, XRT needs to stay above 54-55 (6-7 year bullish economic bottom) or we can expect things to only get worse. Already below the 200 week moving average and in a distribution phase, only a relaxing US dollar and yields can help push Granny back above 62.00

Next is the Russell 2000 IWM. Also in a distribution phase, IWM at least held the June lows while the SPY did not. Remember 162.50 as key support at a 6-7 year bullish business cycle bottom. Small caps in general will tell us when the bottom is close.

Biotechnology IBB is in a weekly bearish phase as indicated by the death cross (50 crosses below the 200-WMA). However, there is another to watch as the market stabilizes as it is well above the June lows and the 6-7 year boss cyclical bottom.

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Regional Banks KRE Take advantage of consumer credit and deposits. An emerging trend is that large banks are making more money on deposits than on loans. As the only sector still above its 200-WMA, this 56-66 area is a chop fest, but it’s worth watching as an outperformer.

When transport costs increase, this affects the prices of the goods to be transported. When small business costs rise, it can be disastrous for profitability. Transportation IYTis also in a sales phase. 195 is the key support leveraging a 6-7 year bullish business cycle bottom.

Semiconductor (SMH) spent 3 weeks under the 200-WMA. Its 6-7 year bullish business cycle bottom is quite a distance from Friday’s close or $28. Perhaps this level will bring us some surrender?

Is the economy headed for recession, more stagflation, hyperinflation? Only time will tell what the future holds for the US economy.

Whether you are just starting out in trading or are looking for advanced strategies to increase your trading returns, Modern Family is an invaluable tool that will help you. Subscribe to something Misch’s Daily for additional market insights and stay up to date on the next market moves from the Modern Economic Family.

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Watch Mish in the media:

BNN Bloomberg 10/14/22

NASDAQ talks 10/14/22

stock market Analysis and Summary of Trading ETFs:

S&P 500 (SPY) Hit the 50% Fibonacci level off the March 2020 lows at 351 on Thursday and then rallied strongly. Below 3510 support 330 and on the upside resistance 360, 370, 382 and 396.

Russell 2000 (IWM) 162.50 support 177 resistance

Dow Jones Industrials (DIA) 285 support 300 resistance

Nasdaq (QQQ) 255 support (could go to 220) 270 resistance

KRE (Regional Banks) 56 support, 60 pivot, 65 resistance

SMH (semiconductor) 167 support 190 resistance

IYT (Transportation) 195 support and 207 resistance

IBB (biotechnology) 116.00 support 122 resistance

XRT (Retail) 54-55 support 62 resistance

Twitter: @marketminute

The author may have a position in the securities mentioned at the time of publication. All opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.


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