Recently, we talked about the ongoing battle between the regional banking sector (KRE) and the ETF (20-year Treasury Bonds) (TLT). Everyone has their own 50-day moving average nearby and wants to use them as potential support. Currently, the 50-DMA costs $ 145.97 for TLT and $ 65.09 for KRE.
On Friday, TLT advanced considerably from the key assistance level. Although the TLT was approaching 50-DMA, it never had a daily close below the moving average. This has turned the 50-DMA into a support area for TLT. Looking to the future, if the force continues at TLT, it could lead KRE to test its 50-DMA, as they tend to operate inversely with each other.
That said, TLT has been on an upward trend since late May. If this trend continues to be higher, TLT could hurt the bullish market, as investors often buy bonds as hedging against market weakness. Also, if bonds continue to rise, a worrying trend could rise.
While we see new highs in most major indices, the Russell 2000 Small Capitalization Index (IWM) continues to struggle with resistance at $ 225. This remains a key level for clearing IWM, as it has made several attempts to reach that price level in the last two weeks. However, if both major indices increase along with TLT, this could be indicating a type of stagflation market environment.
In this situation, the market could have increased volatility and less direction. If that happens, we should keep an eye on consumer commodities, such as food and everyday items that people should buy. We can also pay more attention not only to soft commodities, but also to hard commodities such as reserves of metals, natural gas and oil.
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- S&P 500 (SPY): New highs.
- Russell 2000 (IWM): Need to clear resistance at 224.57-225.
- Dow (DIA): 351 support.
- Nasdaq (QQQ): 362 next support area.
- KRE (regional banks): Looking to keep the 50-DMA at 65.09.
- SMH (semiconductors): Next support area 256.70 the 50-DMA.
- IYT (transport): 258.22 the 50-DMA to clear.
- IBB (Biotechnology): Support 165.80.
- XRT (retail): Support 93.51. 98 resistance.
Deputy Director of Research and Education in Trading