HAP: Natural Resources ETF Makes a New 2016 High

April 27, 2016

Mish's Daily

By Mish Schneider

Unless I have a specific idea early on, or the market yields phenomena I haven’t already covered, my writing process is pretty much the same each day.

I go to the kitchen to rustle up some snack to feed my brain. I return to my desk, close my eyes and wait for an image to appear. I then decide if I can stretch that image to correspond with the market.

Today, it was The Hellstrom Chronicle. Wow. Really Mish? So maybe it had something to do with that poor man from Australia who was sitting on the toilet only to get bit in a very vulnerable place by a highly venomous red back spider.

Or maybe, it’s because of the Zika virus. Yesterday, the Senate neared a deal to give $1.1 Billion to fight the disease, which is rapidly spreading. Amazingly, the stock market has yet to factor in this virus, unlike what happened after the Ebola virus scare in 2014.

So if Hellstrom Chronicle, a 1971 film about insects that eventually reign supreme over the human race, is in my mind, what does that mean?

As you know, I have been watching and trading commodities. I found a small ETF that has made a particularly powerful move off of its January 2016 lows-HAP MV Natural Res ETF.

If there were an insect index, I’d show you that. Insects, either swarming or disappearing like honey bees, have an ongoing influence to our natural resources. The HAP chart is my next best thing.

The reasons for rallies in commodities usually stem from mayhem-drought, floods, geo-political uprising as examples. Mayhem creates havoc in the markets. It can lead to overwhelming inflation.

Today the Fed stated, “Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.”

Sounds so orderly, doesn’t it?

Side by side are two weekly charts. HAP and the S&P 500 (SPY). The peak in HAP came in April 2011 at 43.44. The 2014 peak you see above was 41.10. From there, as HAP declined, SPY rallied. An improving labor market helped the market forget about falling global demand for resources. At the time, deflation was a real threat.

Fast forward to today and you see HAP on new 2016 highs with SPY not too far from the 2015 highs.

Global demand on the rise? Yes. Labor market still in good shape? Yes.

So, what about those insects? In Hellstrom Chronicles, there is a catch-22. Bugs take over because humans have not heed the warnings. At the same time, we are defenseless since there’s not much we can do about it anyway.

The Fed has a similar catch-22. Raise interest rates, and the market suffers. Do nothing, and wait for the assumed orderly and timely 2% inflation target. Lower rates, and that pretty much guarantees tipping the inflation scale.

“Nature has a funny way of breaking what does not bend” Alice Walker

S&P 500 (SPY) December high 211. 207 big support

Russell 2000 (IWM) 113.20 daily chart support. Has to close the week above the 50 week moving average at 114.40.

Dow (DIA) 178 good support and 181.42 recent highs

Nasdaq (QQQ) 107.90 the 200 DMA for this to retake

XLF (Financials) 23.78 fills a gap on the weekly charts. Today high 23.77

KRE (Regional Banks) Confirmed accumulation phase. Weekly chart resistance at 41.08 to clear by Friday

SMH (Semiconductors) 55.66 point to clear and 54 point to hold

IYT (Transportation) Needs to clear 148 hold 140

IBB (Biotechnology) 276 support to hold 290 point to clear

XRT (Retail) 45.60 the weekly MA to close above

IYR (Real Estate) 77.40 pivotal, especially on a closing basis