A Market Like Orchids-Sturdy & Forgiving of Neglect

January 24, 2019

Mish's Daily

By Mish Schneider

blankWe’ve had huge success growing orchids.

I believe the main reasons for the success are because they sit in a southeast facing window and are only watered once a week.

Orchid plants are, in general, sturdy and forgiving of neglect.

However, their flowers are subject to bruising and other damage. 

The best news for orchids: it is more a matter of letting them grow than getting them to grow.

The orchid pictured is the standard Paphiopedilum also known as “Bull dog.”  

Inflorescences should be well developed by mid-January, as you see here.

Currently, the market can be compared to growing orchids.

Here we are in mid-January seeing the “bull dog” in full bloom.

With all the potentially damaging news around, the market seems sturdy and forgiving.

As long as we let the market run rather than try to get it to run, we are in synch with the right light and watering conditions.

Nevertheless, the market remains prone to bruising and other damage.

Can the “bull dog” stay in optimum growing conditions and avoid the risk of bruising.

One quick note. I havent talked about the Year of the Brown Earth Dog in a while.

It comes to mind right now, because of the orchid metaphor and bull dog.

This Chinese astrological year will end on January 31st. I will write a lot more on the new year next week-or when we enter the Year of the Pig.

For now, the takeaway is that we are in a period of the water element as of 2018 that should last until 2025. That could mean the bearish trend is just beginning.

Hence, the risk of overwatering our orchids.

So back to the current blooms.

Todays’ strength came from positive earnings in the semiconductor sector.

As Sister Semi’s SMH is an integral part of the Economic Modern Family, that it went back into an unconfirmed Recuperation phase is a positive.

Does that mean SMH is in full bloom and can only wilt from here?

“A family that trades together stays together” is a motto when it comes to trading the essential sectors.

To date, all the sectors except Retail XRT are above their 200 week moving averages but below their 50-WMAs.

Caution Phases on the weekly charts are not the same as bullish.

Friday, we will need to see Biotechnology IBB clear the 50-WMA at 110. Or even better, XRT clear 44.75 the 200-WMA.

Otherwise, we can still consider this move a dead cat bounce and not much more.

Growing orchids well involves maintaining a proper balance of elements. Similarly, the economic modern family also needs a proper balance of elements.

The best orchid growers instinctively know that if they increase or decrease one of these elements, they will have to adjust the others accordingly. Same with the best traders.

Hence, with the levels mentioned above, we are watching for the market rotation, particularly as we end this week.

We would love to think that there is a "magic bullet,” to make our orchids grow bigger and better and flower more profusely. Or, a magic bullet to make the market continue to go higher.

But in the end, it all boils down to observation and understanding what your plants are telling you so that you can maintain a balance of elements.

And that is the key. We want to observe whether or not the market strikes a balance of buying across many sectors.

Provided we see that, no reason to wait for the flower to wilt.

It will be obvious.

S&P 500 (SPY) Still holding in a Recuperation phase as long as it closes above 261.74. A V-bottom can easily transform into a bear flag if that level fails.

Russell 2000 (IWM) Still holding in a Recuperation phase as long asit closes above 143.46. Unless this closes the week over 147.20, we could see more weakness.

Dow (DIA) 242.85 is its 50-DMA to hold.

Nasdaq (QQQ) 161.23 the 50-DMA. 164.24 the area to close above this week to keep the bulls happy

KRE (Regional Banks) 52.96 pivotal for the end of this week

SMH (Semiconductors) Back to an unconfirmed recuperation phase. 91.08 key support with 93.50 pivotal for the weekly close and 97.11 big resistance.

IYT (Transportation) 177.18 the 50 DMA and 180 huge weekly resistance. Under today’s lows, 172 is next support

IBB (Biotechnology) 110 resistance with 106.40 some support and 103.55 underlying support

XRT (Retail) Back to an unconfirmed recuperation phase. 43.75 pivotal. 44.75 the overhead weekly resistance.

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