Fire Eaters and Bubble Watchers

January 28, 2017

Mish's Daily

By Mish Schneider

mdaily20170130Two men a-bridged toe to toe.

Both men gaze up at a wall.

One man sees friends.

The other man sees foes.

Which one is right?

We’d all like to know.

Last week we delved into Chinese philosophy, U.S. policy and market psychology.

The start of the Chinese New Year Saturday night set the backdrop.

The Year of the Fire Rooster predicts the market as confident, optimistic and flamboyant in its search for attention.

Yet the Rooster, in its quest for showmanship, may lose sight of the big picture and hyper focus on the details. Hence, the market might overreact to minutiae and grab too much attention away from the big picture.

The fire element bodes well for energy, finance, entertainment, and transportation.

It bodes poorly for natural and manmade disasters.

According to the Chinese interpretation of the five elements, this year, while the fire burns, optimism prevails. Once the fire dies, it’s toast until 2022.

We also delved into U.S. policy and how the market’s perception of it mirrors a healthy central nervous system. However, we also factored in that the spinal cord is fragile and if injured takes time to heal.

Given all of that, is it any wonder that market psychology divides between the fire eaters and the bubble watchers?

Last Friday, the GDP numbers raised a concern that strikes right at the heart of our Modern Family.

The U.S. economy grew at a 1.9% rate for the final quarter of 2016. That’s a significant decline from the 3.5% rate the prior quarter.

For the entire 2016, the U.S. economy grew at a disappointing 1.6%. The economic shortfall appeared trade-related.  Exports plummeted 4.3 percent after gaining 10 percent in the 3rd quarter.

With Retail (our dear ole Granny) 70% of the GDP, keep in mind that Recession is defined by 2 consecutively declining GDP numbers. We got one quarter down and counting.

XRT the Retail ETF, closed in a distribution phase both on the daily and weekly charts. Although the rest of the family visits her in the hospital daily, if Granny becomes comatose and cannot recover in the next quarter, expect more complications.

Should the U.S. fall into a textbook definition of Recession or worse, Stagflation, enter the Fed in a big way.

And then of course, there’s the Trump bump. Can he work magic with China, Japan, and Mexico?

Can he create jobs, increase exports, resuscitate retail, and keep commodity prices under control? Can he avoid conflicts with Russia, Korea, and the Middle East?

Just how much and how far can the fiery rooster crow and strut?

One of our subscribers reminded me of the proverbial old Chinese saying:  "May you live in interesting times." Indeed.

Jī Nián Dàjí 

I wish you luck in the Year of the Rooster!

S&P 500 (SPY) Still holding the runaway gap which means cannot fill that gap to 228.34

Russell 2000 (IWM) 138 key resistance and 135.50 key support

Dow (DIA) 200.00 the magic number

Nasdaq (QQQ) Talk about your fiery rooster?

KRE (Regional Banks) Can gauge strength if holds 55.89. 56.73 now pivotal.

SMH (Semiconductors) We keep talking roosters, but let’s give a shout out to the family hen! New highs

IYT (Transportation) 171.16 the high. Must take that out to keep going.

IBB (Biotechnology) Inside day under the MAs. So if it wants to wow us has to clear and hold over 276.

XRT (Retail) 43.90 pivotal resistance. Under 42 sad

IYR (Real Estate) 76.34 the month moving average like to see hold if good

GLD (Gold Trust) I’d tend to think a gap higher from 113.50 good sign

SLV (Silver) This was the winner last Friday. 16.00 support and 16.50 still the number to clear

GDX (Gold Miners) One more push over 23.25 would be better

USO (US Oil Fund) 11.23 the 50 DMA

TAN (Solar Energy) 18.00 key

TLT (iShares 20+ Year Treasuries) Very hard to predict right now

UUP (Dollar Bull) 25.80 support held again. Key

FXI (China) 36.58 nearest support if good

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