A Giant Rat: The Market's Unexpected Trick or Treater

October 28, 2016

Mish's Daily

By Mish Schneider

mdaily20161101Part of the Meow Wolf Art Installation

Last Thursday night, we saw vampire bats overhead as we thought about the possibility of stagflation-the terror and awe of it.

Early Friday, a better than expected GDP of 2.9% helped boost the market. Fears of stagflation apparently abated.

Then, by midday Friday, a rat of Gulliver’s proportions rolled in. Quick to analyze why it grew ginormous, investors snared it, pinned it to a circuit board and then hooked up the rat’s head to electrodes.

And what did they discover? Did the sight of a huge rat threaten the status quo?

Let’s examine. In the world of the indices, NASDAQ, the bullish holdout, ended the week in an unconfirmed warning phase. Perhaps not quite a move of giant rat proportions, it does nonetheless upset the status quo.

The Dow, and its vigilance to maintain a price above 18,000, kept the status quo and closed unchanged on the day and slightly up on the week.

In the Modern Family sectors, Biotechnology took off its oxygen mask closing under the key weekly moving average. Seems what little speculative flow of money remained drained out of it.

Meanwhile, Semiconductors and Transportation continued to glide while Prodigal Son Regional Banks fell.  And Retail tried hard to resurrect. Whether those small gains last into Monday remains to be seen.

Consensus thus far-the rat appears adequately docile. However, our techies wonder what will happen if he gets really hungry?

We got an inkling of what a hungry rat might eat when the news about more FBI probing of Clinton’s emails hit the markets. Later, reports that the emails are not from her personal server mildly stabilized prices.

We saw soft commodities, a featured highlight last week, give back some of their advances. Perhaps a hungry rat will search for Corn, Soybeans, Wheat and Sugar as those soft commodities declined.

Our rat though, left Coffee and Cotton alone. Both rallied last Friday along with Gold, Silver and Miners. Perhaps the metals strength had more to do with the US Dollar easing from its muscle move higher earlier in the week. Perhaps it is the perceived safety net in case the rat’s family shows up.

We begin this week with Halloween. Also, the last day of the month. If NASDAQ confirms the warning phase, all eyes will be on the Dow. Should the Dow fail 18k, trouble. On the flipside, if NASDAQ regains the Bullish phase and the Dow can clear last week’s highs of 182.50, consider it a version of, “Honey, I Shrunk the Rat.”

Also, keep eyes on the treasury yields. Looking at the 20+ Year Treasury Bonds, a hold of 130 could mean yields will soften.

Finally, all rats big and small love cheese. If the Fed or some other clever rat hunter comes in with cheese, sure they can trap a rat. But, will it do much in the long run for the possibility of future stagflation?

Trick or Treat.

S&P 500 (SPY): 214 pivotal 211.20 support

Russell 2000 (IWM) 120 pivotal with next support 117 area

Dow (DIA) 180 do or die support area and 182.50 resistance to clear

Nasdaq (QQQ) 117.50 pivotal. Next support 116 then 114.50. Needs to get back over 119.

KRE (Regional Banks) 44 pivotal area. Warning as a better than average volume reversal topping pattern could be in play

SMH (Semiconductors 68.00 pivotal with 67 support

IYT (Transportation) 143.25 the 50 DMA support and a move above 146 best

IBB (Biotechnology) This is the scary part-it hasn’t closed below the 200-week moving average for 2 weeks in a row since 2009. Week one now done

XRT (Retail) 40.00 area the underlying support. A miracle would be a move back over 43.00

IYR (Real Estate) Narrow range inside day-looks heavy

HACK (Purefunds ISA Cyber Sec ETF) This could develop its own strength.

GLD (Gold Trust) 122.55 is a big resistance level while 121.20 now support

SLV (Silver) 17.00 resistance

GDX (Gold Miners) 23.85 pivotal

USO (US Oil Fund). 11.50 pivotal. 10.80 major support

TAN (Guggenheim Solar Energy) 19.00 recent low

TLT (iShares 20+ Year Treasuries) I sense some dovish FED comments on the horizon making 130 a good support level

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