Weekend Daily: Don’t Be Afraid of the Fed; The Modern Family Will Guide You

Wall Street sold off dramatically on Friday after the jobs report. While the economy is stagnating, many investors are concerned that the Fed will raise rates too quickly, pushing the U.S. economy into a deep recession.

It is good to stay current on the unemployment rate and Fed policy. However, Mish’s Modern Economic Family, composed of a few stock symbols, can serve as a valuable guide to market conditions and the next potential trend. This weekend, we are looking at the weekly Modern Family charts to gain insight, and KRE, displayed above, is one of the family members.

What is the Modern Family telling us about trading next week?

The Modern Family consists of the small-cap Russell 2000 index (IWM), Transportation (IYT), Retail (XRT), Regional Banking (KRE), Biotech (IBB) and Semiconductors (SMH).  Each family member is in a bearish phase on the daily charts. 

Looking at the weekly charts, the Russell 2000 (Grandpa) touched the 50-week moving average in the middle of August, then broke down through the 200-week moving average. The 200-WMA, past support, looks like critical resistance for Grandpa. A move over the 200-WMA of 178 would be a bullish sign.

Just like Grandad, Granny Retail (XRT) also closed at a higher weekly low on Friday. Granny also outperformed the broader market and ended up 3.22%. She is at 58.05 and needs to clear 61.79, the 200-week moving average, to regain shopping strength. But she has unfavorable macro and micro headwinds against her, making a swift recovery difficult.

Transportation (Transports, IYT) has followed a similar weekly pattern, but, once the 200-week moving average was crossed in late September, IYT put in a much lower low and only a slightly higher low for the first week of October at 200, below the 200-WMA at 214.

Biotechnology (Big Bro, IBB) dropped considerably in late August and broke its 200-WMA. IBB has since closed at higher weekly lows. IBB outperformed the broader market, up 1.61% for the week.

The FDA’s approval of medications and encouraging clinical data have helped the industry. IBB must surpass the 200-WMA at 130 at its current price of 118 to keep gaining strength and momentum.

Sister Semiconductor (SMH) is hugging the 200-week moving average and could have found a bottom or a temporary rest stop. Semis are a critical industry for decades to come, but considerable downside risk exists today. Monitor SMH’s price closely for a clearer indication of further market declines or for a potential mini-recovery next week.

Prodigal Son Regional Banks (KRE) closed at a significant higher weekly low and is the only family member who is decisively far above the 200-week moving average. KRE finished up 2.48% for the week. A rising rate environment should provide continued uplift and strong support for regional banks.

Due to the weakening economy, inflation, rising energy costs, higher rates, and a modest decline in employment, the stock market is incredibly vulnerable.

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Mish in the Media

Read Mish’s latest article for CMC Markets, titled “Are We Due Another Supercycle in Miners and Precious Metals?“.

Mish talks hedges and stock picks under the current environment in this appearance on BNN Bloomberg.

Mish says yes to Palantir, no to Bed, Bath and Beyond in this appearance on CNBC Asia.

Mish talks about a few of her picks, going short and why metals are in focus in this appearance on TD Ameritrade.

Mish talks putting your cash to work in this appearance on Business First AM.

Mish and Neil Cavuto discuss Central Bank credibility, US policy and more inflation to come on Fox Business’s Coast to Coast. Unless this is a spectacular bottom, preserving cash is smart.

Mish talks about key averages, yields and commodities on this appearance on Bloomberg TV.

ETF Summary

S&P 500 (SPY): 358 support, 365 resistance. Please note previous first level of support listed for Friday was 371 and Friday’s high was 373 before closing at 362.79.Russell 2000 (IWM): 166 support, 171 resistance.Dow (DIA): 290 support, 296 resistance. Nasdaq (QQQ): 266 support, 272 resistance.KRE (Regional Banks): 59.22 is now support, 61.70 resistance. We had listed support at 60.30 for Friday and sold off to 60.34 on Friday’s close, right around support.SMH (Semiconductors): 185 support, 192 resistance.IYT (Transportation): 198 support, 203 resistance.IBB (Biotechnology): 116.59 is now support, 120 resistance. We had listed support at 119.32 on Friday and sold off to 118.84 on Friday’s close, right around first level of support.XRT (Retail): 57 is now support, 60 resistance. We had listed support at 58.38 and sold off to 58.26 on Friday, around first level of support.

Mish Schneider

Director of Trading Research and Education

Wade Dawson

Portfolio Manager