Did March Just Go Out Like a Lamb?

March 31, 2016

Mish's Daily

By Mish Schneider

“Python Eats Porcupine, Regrets It Later”-Elizabeth Palermo Livescience

Last June, a 13-foot python was found dead by a passerby bicyclist while she was riding at a game preserve in South Africa. Park rangers investigated the snake further because of its very swollen stomach. After cutting open the stomach, the Rangers discovered that the snake ate a porcupine. Although pythons are typically capable of eating prey much larger than they, in this case, the quills of the porcupine ultimately pierced the python’s digestive track.

Using this allegory, for fun I imagine a comparable scenario to explore for the market.

Who is the Python?

Usually able to eat animals as large as an antelope, although this python ingested a much smaller creature, turns out the porcupine and its natural defense mechanism were probably not the last meal the python bargained for.

Who is the porcupine?

That poor animal was in the wrong place at the wrong time. Ironically, although its quills could not save it from death, those quills did take the predator down with it.

For our story, the Python is the Central Banks and Federal Reserve. Able to consume large debt and virtually eating up Government Back Securities while it prints out money, I’m certainly not alone in wondering if they are biting off more than they can chew?

Our porcupine and its quills are the stimulus package and quantitative easing.

If the allegory makes sense, are the banks, although chewing and digesting just fine, unaware of the quills that could wind up piercing their digestive track?

Last night I quoted Bernanke, who not only encourages the new Fed Chairman to use more easing if need be, but also spells out exactly which tools the Fed has at their disposal. Will the very defense mechanism meant to protect the Federal Reserve, the US Government and the stock market wind up as its destroyer?

Meanwhile, the market is like the Park Rangers. The Ranger’s main job is to preserve the park and keep all the animals and visitors safe. With the rally off the February lows, the market’s job has been to make sure that pythons and porcupines (or the Federal Reserve and the stimulus package) keep each other and visitors (investors) safe. So far so good.

The S&P 500 had yet another doji day to end March and first quarter. (Reminder: Doji-when the open and close price are virtually the same). That’s two days of indecision or a possible signal buyers are losing conviction.

Oh yes and yours truly? I’m the passerby bicyclist or the humble messenger of this tale.

“Eating words has never given me indigestion.”- Winston Churchill

S&P 500 (SPY) 2 Dojis in a row. 205.25 fills the gap so technically, the gap from Wednesday is still intact.

Russell 2000 (IWM) 110- a close below will shake up the bulls and awaken the bears.

Dow (DIA) Gap at 176.26 number to hold

Nasdaq (QQQ) Ha to hold 108.90 the gap. Has another gap could fill to 111.84 or could fail 108 and offer a great short

XLF (Financials) 22.50 pivotal area with 22.71 the 100 DMA to clear if good

KRE (Regional Banks) 36.38 support. 38.50 to clear if good

SMH (Semiconductors) 55 pivotal.

IYT (Transportation) Seems a bit tired now-under 140.50 should see selling

IBB (Biotechnology) Could not close above the 50 DMA so still in a bear phase

XRT (Retail) Second Doji day here. 47 big resistance and 45.25 support