Equites, Commodities-What a Crazy Pair!

March 29, 2016

Mish's Daily

By Mish Schneider

Today, we lost another icon of film and television with Patty Duke. Besides loving the “Patty Duke Show” and her portrayal of identical cousins who were anything but, her portrayal of Helen Keller in the “Miracle Worker” remains to this day, one of my favorite performances.

In no uncertain terms do I mean Ms. Duke any disrespect in finding analogies to today’s market activity and the memories she brings to mind.

Why is the Federal Reserve and the ECB Like Identical Cousins- “Different as Night and Day?”

How long can Yellen and the gang remain a “Miracle Worker”, keeping the juice flowing?

Earlier in the day, Janet Yellen said that the “Federal Reserve should proceed with caution in adjusting policy.” Last week, certain Fed Presidents came out in favor of a more aggressive stance on raising rates.

Janet talks as if she is playing the role of Identical Cousins. On the one hand she says that increased uncertainty warrants no action or at the very least, gradualism. On the other hand, she says that if global growth increases, the Fed will go ahead and raise rates.

Trading the FED statements is not the best long-term trading plan. However, I hope I have made it quite clear lately that the Modern Family is truly your show of shows. There has been something in the shorter-term for everyone to sink their bullish, bearish, or neutral teeth into.

My particular attention revolves around inflation projections. According to what I read, the “single most important metric the Fed studies is inflation.”

The Fed is looking for inflation to rise over their 2% target in the next decade. Fed Vice Chairman Fischer states that falling unemployment has a direct link to rising inflation. Inflation from where I sit, is already rising.

The classic antidote to rising inflation is increasing interest rates. That double-edge sword I’ve mentioned several times before. Currently, the gold and gold miners have reflected a flight to quality not seen since 2014. Many agricultural commodities are waking up from protracted bear phases. Any weather or geo-political disruption will make keeping a lid on prices nearly impossible.

So how long can our Miracle Worker work her miracles? TLTs, Gold, Equities all up with the US Dollar down?

The Fed’s ace in the hole on controlling inflation is sustaining low oil prices. Even with a surplus of inventory, I would not necessarily count on OPEC for that to stay status quo.

I still bank more on long commodities than I do on long equities particularly for position swing trades. Active trading? I say have a party. But keep your eyes on the bizarre Fed-created paradigm shift ball.

“Human beings have speculated about the relationship between inspiration and insanity for centuries.”-Patty Duke 1946-2016

S&P 500 (SPY) Back at the 204-205 point that looks great on the charts, but now must clear once and for all to be good.

Russell 2000 (IWM) 110. I admit I doubted it but here it is. Gap fill to 112.51 could be next. And if IWM turns down from here, it might be the best short opp with low risk ever.

Dow (DIA) 175 pivotal still. Blue chips started this party.

Nasdaq (QQQ) 108 resistance cleared today. Like IWM could fill a gap to 111.84 or could fail 108 and offer a great short

XLF (Financials) 22.50 pivotal area-this is a major reason this rally is somewhat hard to commit to.

KRE (Regional Banks) 36.75 support. 38.50 all clear-banks must get involved

SMH (Semiconductors) Over 55 clearer

IYT (Transportation) When this took back the 200 DMA the rest was fairly obvious. Now, over 143 better and must hold 140 area

IBB (Biotechnology) 253 was a good spot to think long against the lows. Still has hurdles but if holds 250 possible to see catch up

XRT (Retail) Granny must have had an in with Janet today-never faltered, holding the 200 DMA and closing on new multi-month highs

IYR (Real Estate) Easily cleared 76.33. Impressive sector

ITB (US Home Construction) Cleared 26.75 which now must stick

GLD (Gold Trust) I’m still long a tail from 104.30-will add if clears 120 on a closing basis

SLV (Silver) Back over 15 would be good