In this article, Mish Schneider, director of trading research and education at MarketGauge.com, considers the movements of the so-called economic modern family and explains what they might indicate.
With all but one member of the economic modern family in a bullish phase, should we be worried or does Monday hold the next piece of pivotal price action?
Before we attempt to answer this question, first we should know where each member stands and if anyone sits in a risky place.
First up is granddad Russell 2000 [IWM]. Friday’s low brought him close to major support from the 50-day moving average (DMA) at $210.95. This area coincides with consolidation from mid to late January.
If the market takes a negative turn on Monday, watching support hold in this index is key.
However, the Russell 2000, along with the rest of the family, are not in alignment with the biotech sector [IBB].
IBB has broken below its 50-DMA for two consecutive days. This confirms IBB has entered a cautionary phase.
Recently, the Transportation sector [IYT] dipped below its 50-DMA into a cautionary phase but was able to recover.
At this point, watching for multiple family members to break 50-DMAs and confirm will show us if we need to decrease our risk exposure in the market.
In the case of IYT, no other member broke their 50-DMA. IYT then went on to clear all-time highs and is now sitting above a support area of $230.
Currently, the closest member to break its 50-DMA is semiconductors [SMH].
SMH hit a low of $234.91 on Friday with the 50-DMA sitting right at $233.33. If SMH cannot hold, we should watch for other members to follow.
With that said, the current trend favours the family holding over its major moving averages.
Monday’s price action may be pivotal, but with the family’s help we know what to look for and which levels need to hold.
This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.