The Fate of The Russell Depends on the Biotech Sector – That’s Not Good

August 28 – Stock mentions: SPY, IWM, XBI, BAC, C, USB, JPM, WFC

US Markets

S&P 500 Futures +3.25 points
10-Year Yield 1.47%
Dollar Index 98.09
Oil $55.77
VIX 20.5

International Markets

KOSPI +0.86%
Shanghai -0.29%
HSI -0.19%
Nikkei +0.11%
FTSE +0.25%
DAX -0.76%

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S&P 500 (SPY)

S&P 500 is pointing to a flat opening, with 2876 act as strong resistance for the S&P 500 futures. Again not much has changed with upside resistance 2900 and downside support around 2825.

Russell (IWM)

The Russell should be the primary focus today, as a break down would be a negative sign for the S&P 500 as well. We will want to see Russell stay in a region above 1450 to 1455.

And after looking through the top weightings among the Russell 2000, it became rather clear to me that perhaps the biotech sector may be the key to where the Russell 2000 goes. One can see in the next chart how closely correlated the two are. I’m not sure that we want to have to depend on the biotech sector these days, as the group’s performance has been rather horrible. Plus it will take just a single thought by anyone in politics to have about drug pricing to get the sector falling.

Dumping the banks

The financials are going to continue to struggle too, as the yield curve inversion continues to steepen. I continue to believe that the cycle is around the lows, and is likely to start reversing higher.

For now, the banks are the group to avoid. I don’t want a thing about buybacks, the group has gone nowhere despite the buybacks, they have meant nothing so far.

Citigroup (C)

Citigroup is one such stock that has approached a break down towards a gap fill at around $58.50.

JPMorgan (JPM)

JPMorgan is nearing a breakdown that could send it to $101.90.

Bank of America (BAC)

Bank of America to $25.75

Wells Fargo (WFC)

Wells Fargo to $43.25

US Banc (USB)

And US Banc to $49.50

That was easy.

-Mike

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