A Market That Thinks Therefore It Is

March 2, 2017

Mish's Daily

By Mish Schneider


blankI saw this while touring Meow Wolf, an art installation in Santa Fe, NM. When I snapped the picture, I knew I would use this slogan for a Daily, but had no idea how, when or why.

After the blast off with runaway gaps to new highs in several instruments on Wednesday, today’s modest but potentially foreboding selloff brought this slogan to mind.

The market and its players are full of caricatures. Most obvious are the Bulls and Bears.

Many traders will tell you that to avoid becoming a caricuture of yourself as a bull or bear requires both inductive and deductive reasoning.

Deductive reasoning or top-down logic involves drawing general conclusions from specifics.

Inductive reasoning or bottom-up thinking involves drawing specific conclusions from generalities.

Therefore, has the current bull market become a caricuture of itself and should we avoid it?

Using Deductive thinking, we are given facts and we use these facts to come up with a possible outcome.

However, what if the facts given to us are faulty or worse yet fake?  The result is flawed analysis.

This year, many traders have had difficulty discerning real facts from alternative facts. That has made it tough to rely on deductive thinking as an investment tool to buy into this market.

Using Inductive reasoning, we look at the data provided to us with a different set of eyes and do not accept any of the data as factual. That teaches traders to break down everything and then reanalyze it through different eyes.

On the one hand since price is factual, using deductive reasoning, the market indicates more upside. Yet, what else besides price is factual concerning the market?

One example, interest rates have not in fact been raised by the Federal Reserve. The only fact so far, is that the Fed has suggested they will “maybe” raise.

Nevertheless, the market sold off today in fear of rising rates. Commodities gave back a lot of yesterday’s gains and the U.S. Dollar gained strength.

If we look at what the Fed may or may not do through inductive reasoning or a different set of eyes, since the GDP came out flat this week along with anemic growth in personal wages, why should the Fed raise the rates now?

Can the market afford an environment where the cost to borrow money is higher? How about if the cost to export our goods is also higher?

How does one avoid becoming a caricature of oneself as a trader?

Try not to trade off fake facts.  Do not necessarily follow nor ignore the “herd.” And remember, we think therefore we are-but the same may not apply to the market.

S&P 500 (SPY) Possible low volume reversal after reaching the 240 target. Important now is to hold the gap if good at 237.50.

Russell 2000 (IWM) After second test and retreat from the top of the channel, this did an average volume reversal. If cannot get back over 139.25 caution

Dow (DIA) Runaway gap if holds above 208.50

Nasdaq (QQQ) Inside day so big key tomorrow. Under 130.62 could see 129.50 quickly.

KRE (Regional Banks) Better volume reversal top day. 56.15 the 50 DMA to hold.

SMH (Semiconductors) Unless this clear 77.50, looks toppy especially if fails 76.40.

IYT (Transportation) Average volume reversal top day if confirms by closing out the week under 170.17. Over 171.15 relief

IBB (Biotechnology) Possible reversal top here too. Only support at 295 could save this or a move back over 300

XRT (Retail) 42.00 ultimate support. A miracle would be a move over 44.15

IYR (Real Estate) Over a 5-month base so looks good if holds over 79.00

GLD (Gold Trust) A fine example of inductive reasoning-rates will rise therefore this must fall. Support 116-back over 119 better

SLV (Silver) Like gold, big selloff. 16.50 support and back above 17 better

GDX (Gold Miners) Into some support but needs to hold and retake 22.00

USO (US Oil Fund) 11.06 the 200 DMA

XOP (Oil & Gas Exploration) Trying hard to hold the 200 DMA at 37.72

UNG (US NatGas Fund) Subscribers: If gaps higher tomorrow could be interesting

TAN (Solar Energy) Must hold over 18.20 or so to stay a contender

TLT (iShares 20+ Year Treasuries) 118 support and 120 pivotal resistance

UUP (Dollar Bull) 26.20 now support to hold

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