Are the Markets Relaying More Monetary Easing on the Way?

October 14, 2015

Mish's Daily

By Mish Schneider

A rich man is nothing but a poor man with money. -W. C. Fields

Rarely do we see a day when the Modern Family trades so divisively. With Granddad Russell 2000 (IWM) and Prodigal Son Regional Banks (KRE) failing their 50 DMAs, how do active traders reconcile the comparatively stronger move up in younger siblings Semiconductors (SMH) and Transportation (IYT)?

I did some research on really fun stuff like the world debt, possible negative interest rates, and risk of global recession.

In the trifecta of bad news, the aforementioned sure offer good odds.

Now, I am not a bad news bear. On the contrary, I simply follow Phases and the trajectory of the cycles within those phases.

However, after examining our Modern Family (IWM, XRT, IBB, SMH, KRE and IYT) last night, it appears that the market could easily revisit the August lows.

Furthermore, with an all Democrat Fed Board of Governors, seems like another safe bet stands with rates remaining low ahead of a presidential election in 2016.

With world debt currently at more than $200 trillion, it is 40% larger than where it was in 2008. Interest rates, already at zero throughout most of the world, illustrate how central banks have essentially taken over as the major influence of the markets.

Historically, when global growth is weak, economies struggle and head into recession. What are we all accustomed to these last few years? Easy money brought to you by Uncle Pennybags (Mr. Monopoly.)

Could the Central Banks and Federal Reserve come back in to lubricate the joints of the market with more easing?

Anything is possible. Some say QE4 is probable.

Concerning Phases, it was a sad day for Granddad, Grandma and their Prodigal Son. While Granny Retail never entered a Recovery Phase, Granddad IWM did ever so briefly. Wednesday’s decline put an end to that.

Regional Banks tanked, although 40.00 could provide some decent support.

Semiconductors, a big factor after the dump in the fall of 2011 as the one to recover first, does indeed provide a silver lining.(Speaking of which, big moves in the metals further intimate at more easing by the FED.) Not to mention the weakening US Dollar.

While Big Bro Biotechnology has not participated in the recent rally at all, Transportation sits on the fence, flexible to go either way.

I’ve been vocal about commodities for some time now, especially the agriculturals. One thing nobody can control-Mother Nature. El Nino, or the Family’s long lost Brother now found, is a real concern.

"Money alone sets all the world in motion."
- Publilius Syrus

S&P 500 (SPY) Strange that no volume accompanied the selloff. Looking at the 50 DMA or 198.89 to hold or not. If holds, back to 200 resistance 192 support

Russell 2000 (IWM) Support on the way down as it is back in a bear phase

Dow (DIA) 166.89 the 50 DMA support

Nasdaq (QQQ) 105.60 the 50 DMA. Under that see 104. Over 107, impressive

XLF (Financials) Good bank earnings could not help this

KRE (Regional Banks) Express train to Distribution Phase if confirms

SMH (Semiconductors) One day wonder maybe. If not, should help everyone else

IYT (Transportation) 144.23 the 50 DMA support to hold with 146.55 resistance

IBB (Biotechnology) Support down here-not amazing but still enough to keep this afloat if the others do not get hit hard

XRT (Retail) Unless clears the 50 DMA at 46.46, under 44 trouble

IYR (Real Estate) 73.00 support needs to hold

GLD (Gold Trust) First time over the 200 DMA since May

SLV (Silver) Cleared the 200 DMA-metals look good