Last week, in the middle of everything, I had cataract surgery. For the first eye I was sedated and if I saw anything, certainly had no recollection of it. With the second eye, however, the sedation didn’t go as well and I was fully awake. I saw the Doctor take out the old lens and replace it with a new and in my view, bioniclens that has me seeing with 20/20 vision for the first time without glasses or contacts!
Naturally, as one who thinks in metaphors, the link between my new bionic lens and the one that the market had surgically implanted seems like a logical fit.
For argument’s sake, let’s call the trading range over the last 2 ½ months (or the range within the range over the last 5 months) the limited view of the market caused by a cataract over its lens. Stepping out even further, maybe it’s the age of the bull market that gave it cataracts (be kind please!).
But why has the bull market grown old? Several different unknown variables are at play-will the Fed raise rates? Will the US economy shrink, stay the same or grow from here? Will the Iranian situation continue to fester? Will Europe continue to stabilize and demand for commodities grow? Will soft commodities behave given erratic weather as we approach summer? Will the rotating flavor of the month of Presidential candidates for the 2016 US Elections knock the planet off its axis?
Ok, I said I and the market got a new lens people, not a crystal ball!
Nonetheless, as we both seem to see more clearly, I go back to the conjectures made all of last week to repeat for the upcoming one.
1. TLTs (20 Year Treasury Long Bonds). Does appear that the Fed will raise rates at some point if one looks at the performance here. On Friday, TLTs tried the 200 DMA and retreated. For those worried about the impact, the market, while the rates firmed, never came close to selling off proportionately to what theLong Bonds did. With the new lens, the Dow took out 18,000 and the DIAtested the top of the 2015 trading range.
2. Looking at my 6 selected instruments (my Economic Modern Family) to watch for a fair macro picture, Russell 2000s IWM, Retail XRT, Regional Banks KRE, Semiconductors SMH, Biotechnology IBB and Transportation IYT, yes all firmed with the market. The Russell 2000s and Retail or what I call Granddaddy and Grandma, did not clear the 50 DMA and closed the week stubbornly in warning phases.
Transportation cleared the 200 but not the 50 DMA, also now in a warningphase. Big Brother and Sister though, Biotechnology and Semiconductorsdid clear the 50 DMA and returned to unconfirmed bullish phases. However, as the leading sectors since 2013, neither came that close to the top of their 2015 trading ranges. Regional Bank ETF, is taking its sweet time clearing to new highs.
3. Interpretation is that the week ended testing the top of the trading range in certain instruments, but not so in any of the Economic Modern Family with the exception of Regional Banks. Furthermore, IWM and XRT are relaying warning-in other words, caution on chasing strength, continue to think the Year of the Sheep paradigm-retreat when full, scatter to digest, then come back to pasture when hungry.
Concerning the new lens after removing cataracts, vision is good for distance, but requires reading glasses for close up work. Long term bullish, short term-neutral to cautious.
4. A word about Commodities-I like many-plain and simple. It seems rates will also have to rise to counteract any possibility that commodities skyrocket forcing an uglier rate rise by the Fed later on.
S&P 500 (SPY) 212.48 is the high of 2015. Under Friday’s low, would venture to guess trading range alive and well. Subscribers: Positive Pivots in all
Russell 2000 (IWM) 123.86 is the 50 DMA-has to clear or market will stall
Dow (DIA) 182.68 the 2015 high or again, like SPY under Friday’s low expect to see 179.50 again
Nasdaq (QQQ) Over 108 believe, unless that area breaks
XLF (Financials) March high 24.78 to clear now
KRE (Regional Banks) 40.00 to 41.50 a range to break decisively
SMH (Semiconductors) Cleared the 50 DMA and filled the gap from May 5th. Over Friday’s high is needed for more confidence.
IYT (Transportation) 156.40 now pivotal and over Friday’s high way better
IBB (Biotechnology) I wrote last week that a move over 350 was farfetched. Never mind! Now that is pivotal
XRT (Retail) A lot of earnings in this group coming up this week. Grandma needs to go to the mall and spend money. It starts with a trip over Friday’s high
IYR (Real Estate) Unconfirmed improvement in phase
ITB (US Home Construction) Has to clear 27.30 to be good
GLD (Gold Trust) That negative slope in the 50 DMA has prevented us from even looking at trading this right now
USO (US Oil Fund) Over 20.60 the bears will be wrong
XOP (Oil and Gas Exploration) Over 52.50 like this after the correction for more upside
TAN (Guggenheim Solar Energy) long term bullish
TBT (Ultrashort Lehman 20+ Year Treasuries) Over Friday’s high think higher
EEM (Emerging Markets) Monthly chart has huge consolidation going back to 2011
CORN (Corn) Like over 23.40
SGG (Sugar) Cash cleared $13.00
PHO (Water) Want to see this clear 25.50
Longs: On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Note: Anything that is on this list is a candidate for a swing trade-(of course market condition is a factor) -use the max risk mentioned along with an opening range stop using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly
***Market Tone: Short-term Positive 3, Intermediate-Term Positive 6, andLong-Term Positive 10, aggregate makes it a positive 19. We have 10 longs which seems like plenty given trading range NOTE: Market Tone is updated before the open each day and reported to you on twitter.
Category 1: N/A
Category 2: N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy an opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry: (Opening range reversals are good on anything above S1)
SYK Big move Friday. Unconfirmed phase change to bullish. Has to hold 93.00 max risk. Like on a ORR against 93 for swing or would consider a day to mini if gaps over 95.00 using that risk
KRFT Improved condition. Has to hold Friday’s low. Good for an ORR or 5 minute OR if gaps over 86.56 for a daytrade to miniswing
PNRA Consolidating. Likes buys on weakness against 180 but if gaps to new highs worth a day to swing against 183.60
Category 4: N/A
Phase Change: N/A
Reversal Trades: N/A
Shorts: Focus list HOG DISH both only on weakness
Category 5: N/A
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
