June 19, 2016
Mish's Daily
By Mish Schneider
Pink Flamingos Atop a Potential Pyre. Art by J.R. Lancaster. Photo by Mish
Pink flamingos search for food atop a pile of wood that could easily ignite.
Thus depicts the market and its players. After a week of mixed signals and mixed messages from the Federal Reserve, Central Bank, and London, the bulls feel comfortable enough to take risks with the understanding that it could all go up in smoke.
Phases in the indices and the Modern Family run the gamut. Nasdaq, the weakest index, ended in a Distribution Phase trading under the 200 day moving average.
The Russell 2000 or the “Eye” Pluribus Unum-out of many one- represents market strength maintaining its Bullish Phase.
The S&P 500 and the Dow are in Warning Phases.
Like all art, the longer one stares at the Flamingos, the more one sees the different possiblities.
I look and wonder is that indeed a woodpile set to alight? Maybe it is a nest the flamingos themselves have built. Inside the nest are gestating baby pink flamingos ready to hatch.
Just like art critics there are market players, all with varying interpretations. Using my Modern Family, here’s mine:
After years of observing and reporting on the ways of the Modern Family, I can confirm that-united they stand and divided they fall!
Note-that phrase is attributed to Aesop and his fable “The Four Oxen and the Lion”. When the oxen stood together, the lion could not attack. Once the oxen began to quarrel, the lion picked them off one by one. Such is the case with the Family-the Russell 2000, Retail, Transportation, Semiconductors, Regional Banks and Biotechnology.
How can the index that represents 2000 small cap stocks be in a bullish phase while Biotechnology threatens to have a massive selloff in an already bearish phase?
How can Retail, 70% of the US gross domestic product and wife of the Russell 2000, sit equally bearish to Biotech? How can Semiconductors uphold a bullish phase while Regional Banks struggle in a bearish one?
Which way does the Transportation sector want to head next? Drive south in the direction of his Grandmother and brothers or fly north to join his Grandpa and sister?
What impact will the declining dollar, negative or close to negative interest rates and rising commodity prices have on the Family? Regardless of the Brexit outcome, those trends appear firmly in place.
This week as you create your trading plan and before you fully commit, think about flamingos and woodpiles. Are flamingos (bulls) procreating? Are their offspring ready to hatch? Are bears sitting around salivating at the possiblity of dining on so many birds? Do any of those bears hold a can of gasoline and a match?
Here are key levels to watch for:
S&P 500 (SPY) Inside day. Back into an unconfirmed Warning phase 207.75 is the 50 DMA and pivotal. With more weakness expect to see 202.50. Over 211, way better
Russell 2000 (IWM) 112.50 level important. 115 pivotal. It couldn’t get there on Friday. If does over 116.50 impressive
Dow (DIA) Inside day. 177.80 the 50 DMA to clear or fail from with underlying support at 173.25
Nasdaq (QQQ) Now that this held 106.25, it either has to bounce back over 107.50 or the 200 DMA or 104.55 area next stop
Volatility Index (VIX) Low volatility Friday but held the recovery phase
XLF (Financials) Held 22.40 with an inside day which means following the range break from last Thursday telling
KRE (Regional Banks) Held support at 38.20 but if good must clear 40.00
SMH (Semiconductors) 54.50 support or a move over 57.20 a relief
IYT (Transportation) Closed with the possibility of a reversal off of Thursday’s low-wild card and definitely the one to watch this week.
IBB (Biotechnology) A rally without this is suspect for sure. Close to a $40 breakdown under 250
XRT (Retail) Granny has 40 to defend and over 42-way better
IYR (Real Estate) 78.00 big support and over 80 new life
ITB (US Home Construction) Unconfirmed return to a bullish phase
GLD (Gold Trust) For all you thinking a down day in is the top-forget that-it’s a buy opp. 2 or more down days, an even better one
SLV (Silver) 15.75 support with overhead at 17.00-could very well be writing a new range higher this week
GDX (Gold Miners) 25.55 pivotal area
USO (US Oil Fund) Grazing the 200 DMA for an unconfirmed Accumulation phase. Not out of the woods though until we get a weekly close over 12.25
OIH (Oil Services) This has closed over the weekly moving average which makes this look promising along with the other oil and service sectors
UNG (US NatGas Fund) Through 7.95 see 8.35 next. Support at 7.70
TAN (Guggenheim Solar Energy) If 20.00 holds I like it
TLT (iShares 20+ Year Treasuries) 135.35 pivotal on a closing basis
UUP (Dollar Bull) I’m thinking down but Brexit will do what it does
EWG (Germany) Worth keeping an eye on for a long
FXI (China Large Cap Fund) Quite inside day.
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