August 1, 2016
Mish's Daily
By Mish Schneider
Photo by JR Lancaster
For the record, fossil fuels are not the remains of dead dinosaurs. Most of the fossil fuels were formed from prehistoric plants and animals that lived hundreds of millions of years ago.
So for now, our Rallysaurus is safe from extinction. However, its second cousin twice removed, crude oil, hasn’t fared as well.a
Crude Oil traded briefly below $40.00 a barrel for the first time since early April 2016.
The Wall Street Journal reported today that “Oil enters a bear market after settling at $40.06 a barrel, down more than 20% from its recent high.” If one looks at a daily chart, indeed that is true. In early July, for no more than a nanosecond, oil went into a bullish phase.
Today, the 50 day moving average crossed beneath the 200 DMA giving credit to the WSJ headline. However, to assess if oil had a real chance for a rally, one must look at the weekly charts.
On the weekly chart, a trend change from a Bearish into even a Recovery Phase USO (U.S. Oil Fund) never occurred. The last time oil traded above the 50 week moving average was in July 2014.
We could say that oil just celebrated its 2-year disappearing act with no immediate plans for replenishing meat back to those X-Ray bones.
But what about our Rallysaurus?
Interesting statistic: For 12 days in a row, The S&P 500 has not moved up or down by more than .50%. That is the longest streak of basically no volatility since September 1995 when it barely moved for a record 14 days in a row.
When I checked back to September 1995, the SPY price action took a necessary breather after a year-long rally. In 2016, we have a completely different scenario. The SPY began the year with a sharp decline. Currently, after making new all-time highs, it has stalled.
So here we are once again with a prehistoric statistic not really relevant in our modern market. A market juiced up by low to negative interest rates with virtually nowhere else for investors to find returns on their money, complacency or lack of fear exists.
Still, extremely low oil prices coupled with poor economic numbers could bring concern of impending recession. Deflation is less of a concern with rising metal prices along with certain commodities such as coffee, sugar, cocoa, cotton and wood.
Furthermore, not everyone is participating in this current equity rally. Remember, we do have a divided Economic Modern Family. Semiconductors live in la-la land. Granddad Russell 2000 is trying to follow his daughter Semi’s lead. Biotechnology is desperately hoping to come back to life, Regional Banks and Transportation sectors flounder while Retail sits in wait for everyone else to make up their minds.
Is our Rallysaurus safe? After close examination, consensus is that the X-Ray shows our specimen has healthy bones. Nevertheless, the soft tissues made up of blood, skin, fat and muscles look like they could be fading.
S&P 500 (SPY) 220 target. That’s if it holds 215.
Russell 2000 (IWM) Inside day. 123.50 resistance 118.83 support
Dow (DIA) Needs to clear 185 and hold 183.35
Nasdaq (QQQ) Closed above the December 2015 high onto new all-time highs
XLF (Financials) Consolidation mode continues
KRE (Regional Banks) After its inability to close above 40.40 last week, this week it begins in an unconfirmed bearish phase.
SMH (Semiconductors) Inside day near the highs.
IYT (Transportation) 143 resistance138.60 weekly support to hold
IBB (Biotechnology) If this is good should hold now above 288-290
XRT (Retail) Through 45.50 better
IYR (Real Estate) Closed on another new high
GLD (Gold Trust) Inside day, and looks real strong
SLV (Silver) 19.00 good risk point now. New 2016 high close
GDX (Gold Miners) New 2016 highs
USO (US Oil Fund) 9.32 low to defend to quiet the bears
OIH (Oil Services) Took out Brexit low. Oil too much for it
TAN (Guggenheim Solar Energy) Over 3 times the average volume traded today. I think this has bottomed but still needs a bit more evidence it can clear 22 once and for all
TLT (iShares 20+ Year Treasuries) 139 is the support I looked for last Friday.
UUP (Dollar Bull) Sitting on the 50 DMA with nary a range today.
FXI (China Large Cap Fund) Consolidation mode
Every day you'll be prepared to trade with:
