A Chart Pattern Hit and Run in the S&P 500

March 30, 2016

Mish's Daily

By Mish Schneider

Doji Day Afternoon

I witnessed 2 random acts and one not-so-random event all in the span of 2 hours this morning.

The event, hardly random, was the passing of a dear friend who bravely fought the ravages of cancer for as long as anyone possibly could.

The random acts-one on the way to say goodbye and the other on the way home-first, a naked man walking his dog in 33 degrees Fahrenheit. The second, a car making a left turn grazing a car as it crossed the intersection. I saw sparks and heard brakes screeching along with the sound of metal tearing against metal. That resulted in a hit and run as the car turning sped away.

Later on, in an altered state, I watched the extremely low volume move in the S&P 500 which began with a gap higher and concluded by holding the gap yet closing basically mid-daily trading range with a doji candle*.

Molasses-type moves on gap higher days I find fascinating. Although gaps as follow through after breakout days should be considered really bullish, it seems a logical conclusion that today’s lack of volume suggests the continued disbelief in this rally.

Thinking about my morning; a naked dog walker, the passing of a friend, witnessing a hit and run-all seem like uncanny reminders of a market many find equally vulnerable. Bulls and Bears alike.

*A doji candle: Characterized by having a smaller than average trading range. (SPY normal range is 1.70. Today’s range 1.28.) The opening and closing prices are virtually equal. SPY opened at 206.30 and closed at 206.06). The doji represents indecision. If formed during an uptrend, it is viewed as a possible signal buyers are losing conviction. Ironically, it’s hard to justify a loss of conviction when there’s hardly been any since this rally began.

And no wonder really. I’ve heard ardent predictions of “new lows” on the horizon as recession grips world economies. I’ve also heard “new highs” by those who believe that the Central Banks and the Federal Reserve have many more tools in their tool belt to ensure that global economies will continue to crawl into recovery.

Bernanke’s most recent blog written March 24^th supports the latter. “Some tools remain in the monetary toolbox, including taking the short-term interest rate to zero, forward guidance about the future path of short-term rates, more Fed purchases of securities (quantitative easing), and negative short-term rates—a tool used in Europe and Japan but not so far in the US… Targeting longer-term interest rates could be a useful additional tool for the Fed when short-term rates are zero.”

Assuming the current FED Board supports these options as well, why do many investors, including myself, still feel vulnerable?

The answers go back to the what ifs. From my March 23^rd Daily-the day of the Brussels attack: “What if the market’s more fixated on “bad news is good news?” What if the Central Bank’s sedative wears off while the world continues to face terrorism? What if inflation, which can happen as a result of the historically low rates, spins out of control? What if the Banks are forced to raise rates?”

Today’s gap higher created sparks. The doji candle represents screeching brakes. Moreover, the lack of volume leaves bulls and bears feeling naked.

The passing of a dear friend, that’s the exceedingly sad and unavoidable part of life. R.I.P MG!

S&P 500 (SPY) Since it was a gap higher day makes sense to want to see it hold 205.59 the low for the next day.

Russell 2000 (IWM) 110- a close below will shake up the bulls and awaken the bears. No gap higher here today

Dow (DIA) Gap low 176.51 to hold

Nasdaq (QQQ) Gap higher so should hold 109.13 if good. Has another gap could fill to 111.84 or could fail 108 and offer a great short

XLF (Financials) 22.50 pivotal area with 22.71 the 100 DMA to clear if good

KRE (Regional Banks) 36.75 support. 38.50 to clear if good

SMH (Semiconductors) 55 pivotal. Gap low today 55.05

IYT (Transportation) Seems a bit tired now-under 140.50 should see selling

IBB (Biotechnology) I’m not convinced this has bottomed until we see a confirmed phase change

XRT (Retail) Doji day here. 47 big resistance and 45.30 support