June 25, 2016
By Mish Schneider
“Bring me the broomstick of the Wicked Witch of the West!”
Dorothy and the story of the Wizard of Oz is one of the best-known stories in American Literature for excellent reasons. Everyone in the story and the scenarios they find themselves in are perfect metaphors for pretty much all life situations.
What is the metaphor that represents the crazy conclusion for this past week?
If you ask the Brits, it’s “There’s no place like home.”
If you ask traders who woke up Friday looking at huge drawdowns in their equity it’s, “I’ll get you my pretty, and your little dog too.”
If you were long gold and woke up to substantial gains it’s, “Follow the Yellow Brick Road.”
Getting the Modern Family to Oz has been an arduous journey filled with witches and flying monkeys.
With a fall from the sky as hard as Dorothy’s was when during a tornado her house went airborne, the Family’s house fell equally hard. And like Dorothy, while her house was airborne, there were signs along the way.
Dead even polls ahead of the Brexit vote, a Family already divided with Biotechnology, Retail and Transportation in negative phases, economic indicators that showed a slowing US economy, political ugliness, and giants like Soros warning traders of coming doom.
But what if there is a man behind the curtain who can make everything all better simply by bringing him the broomstick of the Wicked Witch?
What might that look like this week?
One possible bright spot is the Russell 2000 index. Having broken down from the 2016 peak, it did at least end the week defending the 200 daily moving average. As the MA most institutional investors watch, that could bring in some buyers.
Semiconductors, which led the last rally in strength making new multi-month highs, managed to hang above the 50 DMA. We could also say that SMH had a nasty reversal candle after making those highs. So we will have to see what happens from here-buying or more selling taking it under the 50 DMA.
Retail actually held up better than what one might expect. 40.00 is a strong support level and XRT not only held it, but closed near enough to the intraday highs to make it interesting.
Regional Banks got hit hard as one would expect. The banking industry is vulnerable to uncertainty. Maybe more than most sectors, it serves as a somber warning to not get that optimistic unless KRE can get back over 39.00.
And then of course, there’s Transportation, my “go-to” tell. Like a mean spirited tree, it threw apples at the rest of the market. And it did so ahead of the Brexit decision relaying a fair warning. Now, work needs to be done for hopes of a move back up.
I saved the worst for last, Biotechnology. Breaking everything from the daily chart support to the 200 week moving average, IBB is its own wicked witch.
Will anyone get close enough to the witch to throw water on her and melt her away? And if so, will bringing the Wizard the witch’s broomstick be enough? Is there still a rally “Somewhere Over the Rainbow?”
If the market does have the power to take itself home by clicking its heels three times, then for now, that idea seems as elusive as Glinda the Good Witch arriving to Oz in her beautiful bubble.
S&P 500 (SPY) An inverted hammer doji is when you have a long wick of a candlestick and an open and closing price at nearly the same level. Candlestick analysts will say it means the move down was somewhat forced. Perhaps. Best news, 202.13 is the 200 DMA and it held the 50 WMA as well.
Russell 2000 (IWM) 110.87 the 200 DMA and 112.20 the 50 WMA. So if those levels hold and this returns over 113.45 better sign
Dow (DIA) 172.27 the 200 DMA. 171.97 the 50 WMA so we are in the ballpark of support.
Nasdaq (QQQ) A similar inverted doji hammer candle only under all the MAs.
Volatility Index (VIX) I actually thought this would do better which may be the best sign of all
XLF (Financials) 21.61 the 200 WMA
KRE (Regional Banks) That Golden Cross last week was tricky as all heck. Best thing we can say now is that it held 37.54 the 200 WMA
SMH (Semiconductors) 54.82 the 50 DMA which miraculously it is holding
IYT (Transportation) First to rally in February and first to show weakness at the end of April. Closed under the 200 WMA at 132.46 so there’s the number to clear and close above.
IBB (Biotechnology) 240 some daily chart support but clearly the inevitable breakdown happened
XRT (Retail) 42.00 is huge to clear and would make this market a horse of a different color if does. Otherwise, under 40 south
IYR (Real Estate) Ok folks-hardly moved and held 78-look here for sure
ITB (US Home Construction) Broke the 50 DMA but held the 200 DMA at 26.50-been a huge support area
GLD (Gold Trust) 126 the 200 WMA level to clear now then could see 132. If fails Friday low can see 122.50-124 support
SLV (Silver) 16.53 area now the closest support and this needs to clear 17 once and for all
GDX (Gold Miners) 25.45 the 200 WMA to defend
USO (US Oil Fund) Never took the bait since was waiting for that weekly close over 12.15. Now support area 11.25 then 10.85
OIH (Oil Services) over the 50 WMA and DMA so if it holds could see it could right back up.
UNG (US NatGas Fund) Inside day and support at 7.90 so back to looking at the 200 DMA to clear
TAN (Guggenheim Solar Energy) It actually held the 6/16 low of 19.54. May mean something.
TLT (iShares 20+ Year Treasuries) Didn’t clear the 137.75 recent highs so that too might mean something
UUP (Dollar Bull) 25.05-25.10 big resistance. And now looking at 24.70 support
FXI (China Large Cap Fund) 32.00 big area to defend
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