Last night after the sell-off, we had this to say:

“For junk bonds and small caps, the next day or two will be very telling on whether this a buyable dip, or the start of a bigger correction.”

We also wrote 4 scenarios that could help you decide next moves:

1. HYG holds these lows and works its way back to 77.00 or the 50-DMA. A close above would be considered strong. (NOT QUITE BUT CLOSE)
2. A move under today’s lows in HYG, regardless of what IWM is doing, we would think a bigger correction is coming. (DID NOT HAPPEN)
3. IWM, which failed to hold above the January calendar range high and is not that far under the 50-DMA, clears and holds back above 195. Even if HYG just consolidates, we would consider this a positive for the small caps and market. (YAY-THAT HAPPENED)
4. IWM cannot clear back above 195 and confirms a caution phase, which will lead us to wait for a test of 185 before buying anything new. (HAPPY VALENTINE’S DAY-IWM HELD)

Furthermore, we noted that Granny Retail XRT did better yesterday and Transportation, IYT held 266. Granny Retail rose about 1.5%.

IYT ran up 3.5%-hard to argue with strong transports!

As you can see from the chart, Granddad Russell IWM did its job for today.

ETF Summary

S&P 500 (SPY) 500 now the pivotal point-490 near-term support

Russell 2000 (IWM) 195 support

Dow (DIA) 385 now resistance

Nasdaq (QQQ) 430 pivotal support

Regional banks (KRE) Back to the 45-50 range

Semiconductors (SMH) 200 pivotal

Transportation (IYT) 266 support. 282 the highs so far

Biotechnology (IBB) 135 pivotal

Retail (XRT) The Jan calendar range high at 73 now must hold

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