We cannot begin the article without a mention of the glitch in the NYSE right out of the gate Tuesday morning. A wild stock-price swing occurred at the open, and 84 stocks suddenly plunged or spiked, causing volatility triggers and trading halts. The event is now under investigation.
The chart of Wells Fargo (NYSE:WFC) is a prime example of how this glitch wreaked havoc with a low price of $38.10 before rallying back up to $45.00.WFC-Daily Chart
Perhaps we can notch this up to “Another Brick in the Wall” of chaos leading to inflation.
Regardless, with earnings season in gear, the market will focus on many large corporations’ guidance and future outlook, so today’s glitch could be an aberration or the universe’s harbinger of things to come.
Monday, we focused on the trading range, calendar ranges, momentum, junk bonds’ performance, and the high probability of a rally into resistance.
Today, let’s narrow it down to another of our key indicators.
Long Bonds Vs. High Yield Bonds
Tuesday’s action settled into more of a digestion day in the four indexes. The small caps or Russell 2000 (IWM) had an inside day meaning it traded within the trading range of Monday.
The 6-month calendar range high sits just above current levels in the small caps. Hence, we need clues from the internals on the next big move up or down.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) looks ok as far as price.
Our Big View defines the relationship or ratio between HYG and TLT as a measure of the relationship between risky high-yield corporate debt (HYG) versus the safety of U.S. Bonds (TLT).
“When the ratio is trending up, and the distance between the ratio and the moving average widens, it identifies an increased appetite for risk in fixed income markets.”
However, our Triple Play Market Indicator shows that high yield continues to underperform the long bonds or TLTs. Although the price is trending up on junk bonds, this underperformance versus the long bonds may be a warning sign of possible failing breakouts.
- S&P 500 (SPY): SPY has crossed the 200-DMA and is now slightly above it but is still in a very narrow price range below 50-DMA. Held pivotal support, and now what was resistance is support at the 200-DMA, and resistance is 405 overhead.
- Russell 2000 (IWM): Filled the gap and continued to hold the 200-DMA and overhead resistance at 189.
- Dow (DIA): Back under the 50-DMA STILL as industrials lose ground to tech, but holding support at 335 and crossed the 50-DMA barely.
- Nasdaq (QQQ): Crossed the 50-DMA on Friday to close above. The first resistance level is at the 200-DMA and closing slightly below it.
- Regional banks (KRE): Close to crossing 60.72 (50-DMA). The first level of support is 58, and the resistance is 50-DMA.
- Semiconductors (SMH): Still holding key support easily at the 50-WMA and 200-WMA. 230 support and 238 resistance.
- Transportation (IYT): Still holding 225 key support here and now holding the first level of support, holding 227. Overhead resistance is 232.
- Biotechnology (IBB): Still best sector with 132 key support still holding and holding the first level of support at 134 now with 137 resistance.
- Retail (XRT): Holding pivotal support at 63. Resistance at 68.