February 8, 2018
By Mish Schneider
This is how the market looks when it’s trying to make sense of the “great economy” the reporters are touting while the Dow falls 2000 points from the highs.
When objects on a page become blurry, sometimes, tilting one’s reading glasses increases clarity.
In the case of my unsuspecting subject, she’s got her glasses so far tilted, she can make up whatever words she desires to see.
Such is the case for the varying and directly opposing market opinions.
Tilt your glasses one way and see Fed’s Dudley say, “Global Economy is doing fine; stock sell-off so far is small potatoes.”
Tilt them further and you read Dudley go on to say, “3 rate hikes seems in 2018 pretty reasonable.”
Yet, if you tilt your glasses the other way you’ll read “The soaring federal budget deficit under Trump intensifying market frenzy.” Bloomberg.
Tilt those glasses to the point of lopsidedness and you will read, “Investors remained on edge Thursday as the resurgent threat of inflation and higher bond yields renewed concerns that rising interest rates will drag on the economy.” Bloomberg
Do our eyes beseech us; or, has the smart money developed presbyopia?
Perhaps I can be your trading optometrist.
Every member of the Modern Family is now in a warning phase.
As of yesterday, Regional Banks (KRE) and Biotechnology (IBB) were holdouts. Now, they too are in unconfirmed warning phases.
The warning phases in the Russell 2000 and Semiconductors are increasing in momentum as the slopes begin to turn down.
Imagine yourself in my optometrist chair and I ask you which is clearer, lens number 1 or lens number 2.
Based on the warning phases, if lens number 1 shows more sell-off in store, then that’s the sharper view.
On the weekly charts, the S&P 500 has not closed below a key exponential moving average since November 2016. That number comes in at 267.35.
Therefore, if by the end of Friday’s session, SPY holds that level plus KRE and IBB retake the 50 DMA rather than stay in a warning phase, you might choose lens number 2, or the one that clearly shows the bulls are still in charge.
With both eyes open, I continue to watch the interest rates and the dollar. Should the dollar break back below 23.48, then my eyes will adjust to focus in on commodities prices.
I have already offered you hedges (protective glasses) by suggesting you look at buying the ultrashorts in both the S&P 500 and Semiconductors.
They gave you profits today, which to me means you can now play with house money and have breakeven stops in place.
Besides waiting for the dollar to drop or the market to show signs of seller fatigue, do not trade if during your eye exam, your pupils were dilated.
S&P 500 (SPY) Unless this clears back over 267.50, continue to keep your powder dry and/or stay short Subscribers: Negative Pivots in all
Russell 2000 (IWM) 144-145 Support. Thru 150 ok-over 152 way better
Dow (DIA) 245 is the exponential MA that if it cannot clear most likely means selloff not over
Nasdaq (QQQ) 158.35 is the weekly moving average that has not seen a week close below since November 2016. Can still take it if buyers come in.
Every day you'll be prepared to trade with: