How to Handle Monday’s Major Liquidity Crunch

All the major indices tumbled on Monday, leading to a large liquidation. Even safety plays, such as precious metals like gold (GLD) and silver (SLV), were down on the day. Many are wondering what to do, as most financial planners tell their clients to hold onto positions since the market will inevitably come back.

With that said, our approach to managing trades, whether for the long or short run, stays the same. If the market is telling us to get out by hitting our stop level determined by technical analysis, we listen. This prevents us from getting badly hurt on our overall capital.

Getting out of trades also gives us time to take a fresh look at the market for new opportunities. While the indices have broken down on the shorter-term daily chart, it should also be noted that the weekly picture is degrading, especially in the small-cap index Russell 2000 (IWM).

In the above weekly chart, IWM has now broken its 200-week moving average. This puts IWM into a distribution phase if it continues to hold under $176.14. A distribution phase is created when the price is trading under the 200-MA, while the 50-MA is over the 200-MA. Therefore, we should watch for IWM’s price to either continue to hold its new phase or watch for a potential rally over at $176.14.

While we wait for the proverbial dust to settle, we are focusing our attention on the commodity space. With inflation rising we see potential in sectors related to food, metals, and more. Now is the time to wait and watch for low-risk trade setups.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

After another volatile week in the market came to an end, Mish looks at the macro and gives you a roadmap to guide you through all the hyperbole. On the latest edition of StockCharts TV’s Mish’s Market Minute, she provides a sensible plan that reduces risk and potentially equips you with the ability to make some money.

ETF Summary

S&P 500 (SPY): Watching to find support. Resistance at 410.  Russell 2000 (IWM): 176.14 200-WMA pivotal. Dow (DIA): 322 support area. Nasdaq (QQQ): 317 resistance.     KRE (Regional Banks): Watch to hold over 61. SMH (Semiconductors): 225.80 needs to clear. IYT (Transportation): 239 resistance. Watching to find support.    IBB (Biotechnology): Breaking down.  XRT (Retail): 70 now resistance.

Forrest Crist-Ruiz


Assistant Director of Trading Research and Education