A Floatie Is A Floatie

August 11, 2015

Mish's Daily

By Mish Schneider

No matter where it comes from

I ended Monday’s night’s commentary wondering if the Federal Reserve would be the Baby Ruth Bar thrown into the pool or “the turd to end the rally.”

Instead, the turd was “Made in China.” A Baby Ruth bar is an innocuous threat since it’s really made of chocolate. China devaluating their currency on the other hand-well, if it looks like, smells like, and tastes like, then it is a...

Recently, we examined the 3 layers to watch concerning the market direction. The 2015 trading range, the July 6-month calendar range and the Phases.

Phases, especially given the cycle of nature, are most intriguing as we have seen a perfect deterioration of them by watching the Dow (DIA). In 2015, it has changed phases 17 times!! The Death Cross or Bearish Phase it entered as of Tuesday, completes half of the 6 phase’s cycle.

When Phases change that often, the interpretation that instability is around the corner makes sense. It translates to nervous longs and shorts with an overall lack of commitment by either. Now that DIA is in a Bearish Phase, we assume to be a seller of rallies since we have no way of determining the amount of time it will sit in this Phase nor how much lower the price can trade from here.

Concerning the other 2 layers, the July 6-month Calendar Range low 174.44 broke down. The 2015 Trading Range low 170.10 is a major support level.

We are still in this humongous 2015 trading range in all of the indices. What is best about Bearish Phases, is that hope springs eternal. At some point, all instruments improve back to a Recovery Phase. Helpful to technical traders is knowing how to detect bottoming action, discern risk and ascertain confirmation.

With our Modern Family (IWM, XRT, IBB, SMH, IYT, KRE) we span the phases from Warning to Bearish. Please click on “Modern Family” to learn more about how it works.

Our weakest sector, Semiconductors, was first in the pool on Monday and subsequently, first one to nearly drown on Tuesday. Our strongest sector, Regional Banks, entered an unconfirmed warning phase. That has only changed phases 3 times this year.

Using similar logic as with the DIA, KRE is above the 2015 and July 6-month Calendar Range lows with a direction not nearly as uncertain.

Currently, the Bulls are defending our Prodigal Son, keeping him away from floaties and instead, keeping him afloat on a raft.

S&P 500 (SPY) Here’s another one following the multiple personalities guide to phase changing. Back in an unconfirmed warning phase, the 200 DMA 207.53 is next and over 210 a huge surprise.

Russell 2000 (IWM) Granddad makes me uneasy unless it can clear back over 121.50.

Nasdaq (QQQ) Seriously, this is defending the 50 DMA like an Olympian swimmer.

XLF (Financials) Only 11 phase changes thus far this year. In a bullish phase currently.

KRE (Regional Banks) 42.74 is the July 6-month Calendar Range low with 44.16 the 50 DMA

SMH (Semiconductors) Held 51 so that’s something.

IYT (Transportation) 2 inside days which means a really good one to follow the way the range breaks keeping in mind the strong bottoming formation.

IBB (Biotechnology) If fails 361.89 fails the July low. Otherwise, has to hold 364.50 or looks like July low will turn into a watch for the 200 DMA well below

XRT (Retail) Granny giving us drama, breaking but then closing on the 200 DMA

IYR (Real Estate) Closed over 75.20 which means could be the sector to save the day!

XHB (US HomeBuilders) Inside day. Near 2015 highs which looks inevitable to clear with a 7 month consolidation

GLD (Gold Trust) Closed over 106, but I’m still not that impressed

SLV (Silver) Inside day under the 50 DMA making this more worthwhile to watch

GDX (Gold Miners) Big volume-so there is buying

USO (US Oil Fund) Not done yet but that won’t last forever

OIH (Oil Services) Bottomed last week and had an inside day

XLE (Energy) Like this one a lot with good volume coming in

XOP (Oil and Gas Exploration) Inside day.

UNG (US NatGas Fund) Like this a lot too especially over 13.75

TAN (Guggenheim Solar Energy) Another new low since January’s low of 31.77. I continue to stand aside but watch for a valid reversal signal.