Watching Levels For Signs of Panic and Opportunity

Long time readers know I do prefer to focus on the indicators and statistics of the market rather than specific levels. There are many folks out there though who do care about levels.

One reason I almost always prefer to see a break of a well watched level is because to me it can cause panic from the 'level' watchers and panic often creates opportunity. Today I find myself staring at many charts that have come down to levels that I figure so many eyes must be on.

Let's begin with the Russell since by now you had to have been living under a rock not to know it stinks. When my mother called me Tuesday morning I was certain she was going to ask about it (she didn't!). But take a look 1655 was the prior low in early August, before it made that last gasp move to a higher high.

I'm certain there will be those who say if it breaks here it's going to 1640 (the next level) but that's another percent from here. Either way, a break of this level would be a lower low and it would be the first time since the spring lows.

And what of the bank index which I thought would rally this week? It sits at 104, the same level it has held pretty much all year in 2018. It is possible folks might get upset over this if it breaks. Last Friday I thought if it broke down under 104 it would be capitulatory because when a chart falls 5% that fast in a straight line a break of support is often 'late'. However when it rallies from support or worse, mills around at support and then breaks, it's worse because it tends not to be exhaustive but fresh, like it caught its breath.

Then there are the transports which have come down to a prior low as well. We'll call it 11,200. There is even a small head and shoulders top on the chart. But again, here's a level that many eyes could be on.

Lastly there is the chart of Nasdaq with the same uptrend line I had drawn in last week. It has revisited the line once again. On this chart I don't know if folks would be so concerned about the level as much as the break. The level on this chart is 7900 (prior low) but that is 100 points away.

I will end with the chart of the ratio of IWM to SPY. The dramatic move on Tuesday still did not come all the way down to the prior lows but we are much closer now. This means the next time we have the market set up for a decent rally we'd probably want to buy small caps. That set up becomes the missing link now.