Retail Holds the Line but Transports Hint at Broader Breakdown

On July 13th I wrote a Daily on .  

To refresh 

The July Pattern

The Six-Month Calendar Ranges  

1. Provides directional bias for the next 6 to 12 months.  
2. January and July divide the year  
3. Simple levels that matter + the right indicators and tactics.  

Overall, we look at 2 simple things.  

1. If an instrument breaks out of the range or breaks below with momentum and price and then has follow through.  
2. If an instrument breaks out or down and then reverses back into the calendar range high and low.  

Subsequently I wrote this 

Maybe I am just a technical geek, but this chart is so perfect, it will require only execution and no second guessing if it aligns into one of these scenarios (I wrote 5 but number 3 worked out). 

Scenario 3: takes out the July highs and then fails it (low risk short)  

Note the chart of XRT our Retail sector and Granny of the Economic Modern Family. 

On July 22nd XRT cleared the July range. Then on July 28th, XRT failed it. 

Retail then spent the next 3 days selling off, despite the strong earnings in the tech stocks. Do consumers care about rising CAPEX in META? 

Not really. 

Then, as we ended the week, XRT is under the 50-DMA but over both the July 6-month calendar range low and the 200-DMA. 

Looking at momentum, we see no divergence between price and momentum. 

Looking at , Transportation: 

The picture is different. 

Transportation, a huge component of the US economy, shows not only stagflation potential, but a recession potential. 

IYT never cleared the July 6-month calendar range high. 

The momentum went into a bearish divergence before the price broke down under the July calendar range low AND both the 50- and 200-day moving averages. 

Thus far, XRT is telling us that this could be just a correction to July lows and support, while IYT is suggesting perhaps a bigger correction is in store. 

Hence, we go to our Sister Semiconductors for more clues about what’s next. 

Always look at the weakest link and the strongest link to gauge whether dip buying is the right thing to do or not. 

We see IYT says be patient, the worst could yet be around the corner.  

XRT says maybe Friday was the end of the selloff. 

And SMH says: 

The July 6-month calendar range barely cleared for 2 days.  

Even with Microsoft (NASDAQ:), META (NASDAQ:), Alphabet (NASDAQ:), Advanced Micro Devices (NASDAQ:) all reporting spectacular earnings, our sister was not convinced that the bull case would still work with her Family down in the dumps. 

SMH broke the July range high (green horizontal line) on Friday with a price gap lower. 

However, the July low made on July 1st at 272.16 is still $10 away. 

Looking at momentum, once again real motion gave us a head’s up. 

Momentum never made a new high when the price did. 

That is another type of bearish diversion. 

Now, to answer the question of whether this is a buy opportunity on a dip, or we go further south, SMH is key. 

IYT must stop bleeding. 

XRT must hold the July 6-month calendar range low (red horizontal line). 

And SMH must maintain momentum above its 50-DMA AND hold the price above 280. 

We do that, dip a toe. 

We fail to hold, stand by for more August pain. 

ETF Summary  

(Pivotal means short-term bullish above that level and bearish below)  

The divergence between growth and value continues to widen 

S&P 500 (SPY) 615 July low to hold  

Russell 2000 (IWM) 215 July low to hold  

Dow (DIA) On the 50-DMA but below the July range low  

Nasdaq (QQQ) 545 the July low to hold 562 the range high to clear 

Regional banks (KRE) 59 the July low and very pivotal   

Semiconductors (SMH) 280 pivotal 272 support and 293 the place to clear  

Transportation (IYT) 66 is key support and move over 68 better 

Biotechnology (IBB) Not in bad shape-on the 200 DMA so 133 a good pivotal point   

Retail (XRT) 76.00 July low must hold. Back over 78 better 

Bitcoin (BTCUSD) Broke 116 July low 105-we shall see