Historic Market Divergence, What Should You Trade?

May 17, 2020

Mish's Daily

By Mish Schneider


Stanley Druckenmiller came out and said that the market has never been this disconnected from reality and that the risk/reward has never been this bad.

Besides Druckenmiller, Ray Dalio had some words about the market:

The dollar, euro, and yen are in the late stages of their long-term debt cycles. This could mean that in the near future our dollars could be potentially worthless. One of the reasons Ray Dalio says were are at the end of a long-term debt cycle is because debt is at an all-time high, and interest rates are at an all-time low. This makes holding our currency very risky.  We have more and more debt piling up very little return on the dollar. Additionally large amounts of new debt are being created and monetized with COVID-19. Big devaluations and/or the loss of reserve currency status by the leading reserve currencies would result in the most disruptive economic event we could imagine.

Paul Tudor Jones believes gold will go to $2400 an ounce.

I include these statements because I am looking at what poor risk/reward, the divergence between the economy and the market, a declining dollar, high debt, low interest rates and rising gold prices offer traders as far as profitable investment opportunities.

There are always opportunities if you know where to look.

Last week, we wrote about the clear divergence between the up action in gold and the down action in stocks!

Gold closed strong as did silver and gold miners.

The updated charts I show you of the Economic Modern Family support Druckenmiller’s, Dalio’s and Paul Tudor Jones’ theories.

The Russell 2000 IWM is marginally trading under the weekly channel support line.

Granny Retail XRT is sitting just under the channel line resistance.

Prodigal Son Regional Banks KRE looks the weakest.

Transportation IYT sits in the middle of hope and despair.

Big Brother Biotechnology IBB held the channel line breakout and remains most promising.

Sister Semiconductors SMH, like IWM, trades marginally under its weekly channel support line.

In this week’s installment of StockChartsTV, I walk you through my Economic Modern Family, Outperforming small caps, the Outliers such as the Bonds, the Dollar and Bitcoin, and wrap up with a fresh look at Gold, Silver, Grains, Gasoline and Soft Commodities.

Watch here.

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S&P 500 (SPY) 285 pivotal 278 support 290 resistance

Russell 2000 (IWM) 126.75 resistance 119 support

Dow (DIA) 229.20 support resistance 238

Nasdaq (QQQ) 220 nearest support to hold 230 major overhead resistance

KRE (Regional Banks) 30.00 held & must hold, 33.13 is the resistance.

SMH (Semiconductors) 132 pivotal 125.70 support

IYT (Transportation) 140 resistance 133.00 support

IBB (Biotechnology) Rallied off the 128 support-133.60 resistance

XRT (Retail) 33.50 support 37.15 resistance

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