Precarious action on the bond and stock markets

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It’s been a wild ride on Wall Street this week, with stocks swinging wildly back and forth before closing slightly lower overall for the week.

CPI data indicates that inflation is entrenched in the economy, compressing real household income and a significant concern for businesses.

This year also challenges historical relationships and market adages.

For example, the surge in magnitude that the market experienced last Thursday brought out the “historians”.

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

This is precisely why we have the modern economic family, because each member has a very interesting analysis (and for us much more reliable than calculators) to examine.

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

Here are three things to watch for next week:

  1. The VIX is still high. The VIX, a measure of market volatility, hit 33 on Tuesday, its highest level since February 2018. Although it has fallen slightly since then, it is still high at 32.
  2. All but two of the Modern Family members are in the weekly distribution phase. One is in a cautious phase and the other in a bearish phase. All are still above their 6-7 year business cycle, although they are testing the lows. We find this intriguing and quite essential. (Recent media clips go into more detail).
  3. Long bonds (TLT) are still under intense pressure. Yields on 2- and 10-year Treasury bonds continue to rise.

Focus on the main stock market ETFs…

At the top right, the weekly chart of Granny 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 hold above 54-55 (6-7 year bullish economic cycle) or we can assume things will only get worse. Already below the 200-week moving average and in a distribution phase, only US Dollar and relaxing yields can help pull Granny back above 62.00

Then comes the Russell 2000 IWM. Still in a distribution phase, IWM at least held the June lows while the SPY did not. Remember 162.50 as this is key support using a 6-7 year bullish economic cycle. Small caps in general will tell us when the bottom is near.

BWI Biotechnology is in a bearish weekly phase as seen with the death cross (50 crosses below the 200-WMA). However, another one to watch when the market stabilizes as it is well above the June lows and the 6-7 year bull economic cycle.

KRE regional banks profit from consumer loans and deposits. An emerging trend is that the big banks are making more money from deposits than from loans. As the only sector still above its 200-WMA, this range between 56 and 66 is a chop fest but worth watching as an overperformer.

When transportation costs rise, it affects the prices of goods that need to be transported. When small business costs rise, it can be disastrous for profitability. IYT Transportationis also in the broadcast phase. 195 is key support using a 6-7 year bullish economic cycle.

Semiconductors (SMH) spent 3 weeks under 200-WMA. Its 6-7 year bull economic cycle is quite a distance from Friday’s close or $28. Maybe this level will cause us to capitulate?

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

Whether you are just starting to trade or looking for advanced strategies to increase your trading returns, the Modern Family is an invaluable tool that will help you. To subscribe to Mish’s daily life to get additional market insights and stay updated on the upcoming modern economic family market moves.

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Watch Mish in the media:

BNN Bloomberg 10-14-22

NASDAQ Talks 10-14-22

Sotck exchange ETF trading analysis and summary:

S&P 500 (SPY) Hit the 50% Fibonacci level from the March 2020 lows on Thursday, at 351, then rallied sharply. 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 (can go up to 220) 270 resistance

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

SMH (Semiconductors) 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 titles mentioned at the time of publication. Any 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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