October 1, 2015
Mish's Daily
By Mish Schneider
Swing Trader’s Sanctuary
Feel like there’s been a relentless force putting pressure on you to trade? Has the market hampered your ability to do so with clarity and grace? Do you seek a buffer zone to take refuge from the market’s stressful barrage?
In political science terms, a buffer zone is an area between two antagonists that is put in place so they do not attack each other.
If we substitute the two antagonists for bulls and bears, where might their demilitarized zone be?
With the trend bearish in all indices, generally I will look for sanctuary by finding the weak instruments to short but also the stronger instruments or those that are going counter to the overall trend to buy.
As a swing trader, I have to be fully convinced that the risk/reward ratio makes sense. That means, in my analysis, I have to calculate the distinct possibility that the market could have a nasty selloff (as would be expected in a bear market).
In that case, I ask myself, how much pain might I endure compared to what I could expect to make should the market have a substantial bounce?
The inverse is true if short. After all, some of the largest percentage rallies occur in bear markets.
One must always establish a trade assuming they will lose money and then risk accordingly. The perversity of the current market is that even if one can assume the loss, determining the potential gains is far more dubious. For that reason many swing traders have turned to cash.
It makes sense that after a month long period of volatility, we are beginning October with consolidation. And here’s the rub. Consolidation does not necessarily translate to bottoming action.
The indices seem more likely to consolidate and then continue their downtrend until some substantial reasons emerge for them to bottom.
Warren Buffett once said that cash is the worst investment. He’s right of course. Yet, when calculating win/loss ratios makes you want to scream, “SANCTUARY”, there’s something to be said for cash.
S&P 500 (SPY) 190 pivotal and 197.43 above the monthly moving average. For now, over 192.50 could mean higher before lower.
Russell 2000 (IWM) Over 110-110.54 is a better sign for this although there is resistance all the way up. 108.00 support to hold
Dow (DIA) Over 163 clears the fast MA. 160 pivotal. 170 major overhead resistance
Nasdaq (QQQ) Closed over the key monthly MA. Had its death cross finally. If clears 103, maybe a rally closer to 106-107 for a new and less risky short.
XLF (Financials) Definitely consolidating
KRE (Regional Banks) Major support 40.20-40.50. The 200 DMA at 41.44
SMH (Semiconductors) 47.55 support, 50.11 (50 DMA) resistance and pivotal
IYT (Transportation) 142 resistance which if clears could mean 144.75 next. Under 139.35 trouble
IBB (Biotechnology) 310 resistance and 292 ultimate support
XRT (Retail) 44.00 pivotal 45.40 Resistance
IYR (Real Estate) I saw the move in mid-September to test the 50 DMA before it happened. Now, we have to wait for it to clear and confirm to be convinced
ITB (US Home Construction) 25.36 key monthly MA support to hold
GLD (Gold Trust) Bear Phase again
GDX (Gold Miners) Failed the 50 DMA but holding recent lows
USO (US Oil Fund) Waiting for 15.00-came and went
TAN (Guggenheim Solar Energy) Closed over my 26.60 mark so on the radar Friday
TLT (iShares 20+ Year Treasuries) Looks better over the 200 DMA and has to hold 122.41 the 50 DMA
UUP (Dollar Bull) 25.00 pivotal and over 25.17 clears the 50 DMA
CORN (Corn) Over 24.00 gets real interesting
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