Stock Investors Hide Behind The Volatility Mask

At one point today, the Dow was down around 500 points.

By the time 2/3 of the day ended, the Dow went to breakeven. 

At the end of the day, the Dow closed up at 245.30.

It has gotten to the point where after a 500-700-point decline, any rally has one saying, “The Dow is ONLY down by 300, 100, etc.

For some perspective, this volatility is disconcerting.

Yet, the Dow and the S&P 500 remain far above their 2018 lows.

In contrast, the Russell 2000 IWM made a new 2018 low early this morning.

Hence, that small caps are weakest reflect the anguish of many traders who are now afraid of getting involved one way or another.

Furthermore, with December now nearly ½ over, one wonders whether volatility will slow down ahead of the holidays.

And if it does slow down, will that send a comforting message to traders, or might it turn out to be the calm before the (next) storm?

What is most fascinating today is how the Transportation sector performed.

The original 2018 low was made in February at 176.62.

Today, IYT posted a low of 174.64 and rallied back above the older low to close at 178.32.

Even more interesting or picture perfect, is that Retail XRT, had its 2018 low made in April at 42.70.

Today, XRT fell to 42.65 and closed green at 43.43.

Biotechnology IBB, had a similar scenario.

The 2018 low in IBB was made at 100.22 in April.

Yet, since then, four more attempts, including today, were made to test those lows. Each time, IBB had a bounce.

The low in Semiconductors SMH, this year is 86.95. Today’s low 88.90.

What is the point?

We now have 2 measures that can help us see the next direction.

First, in IYT, XRT and IBB we have today’s lows and even better, for IYT in particular, we have the old low to use a measure.

Secondly, should these lows hold, we have to assess how deep or shallow the ensuing rally will be.

A shallow rally will be if IYT cannot get back above 180.00.

A deeper rally will be one that takes out and holds above 182.80.

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Disclosure: None.

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