How KRE Signals the Market's Next Move

October 29, 2015

Mish's Daily

By Mish Schneider

I enjoy writing these dailies for so many reasons, not the least of which is the rabbit hole of research writing them often sends me down into.

For instance, I delved more into 1979 and interest rates. At the time, I was a very young girl beginning a career on the commodities exchange in the World Trade Center in New York.

A fabulous time to enter this whole new world (I was a special education teacher beforehand). The thrill on the floor and in the world was about rising commodities prices, the OPEC embargoes and out of control inflation.

Concurrently, history was being made concerning monetary policy. On October 6, 1979, Paul Volcker, then Chairman of the Federal Reserve, was given the leeway to be more flexible and thereby more aggressive adjusting the Federal Fund rates.

His job was to curtail out of control inflation which by 1980 had peaked to over 13%!

Which Brings Me to Today: With inflation extremely low, and the present day Federal Reserve under pressure to do both-raise the rates and/or add more liquidity, the markets have been divisive at best.

Circling back to our Prodigal Son, Regional Banks (KRE), we can try to assess the reaction to the Fed going forward.

Regional Banks (KRE) perfectly reflect the confusion over the FED’s next moves and what to buy or sell.

On Wednesday, after the FED announcement that they would keep rates the same but revisit a rate rise in December, KRE rallied like it was 1979.

In KRE’s current Accumulation Phase, the 50 remains below the 200 daily moving average. The 50 is quite close to the 200 DMA however. That means with continued strength it is very possible to see a GOLDEN CROSS or a return to a bullish phase.

On the other hand, considering I wrote a piece earlier this week on recognizing the 5 Criteria for a Reversal Pattern, I am equally prepared for Thursday’s action to turn out as a reversal.

KRE made a new 60 plus day high, closed on the lows, with better than average daily volume. Yet, it had a relatively small range and did not close below the low of Wednesday.

That means it has to confirm whether or not it is indeed a reversal by following up with a weak performance on Friday.

With leadership coming from only a few NASDAQ 100 stocks, the underlying breadth of the market remains suspect if KRE cannot hold.

Nonetheless, if KRE ends the week well, the message appears as confidence in the slow but continually improving US Economy.

As far as inflation goes, I still remain hyper focused particularly on agricultural commodities.

Maybe it’s because I began my career trading on the Coffee, Sugar and Cocoa Exchange. Fond memories of easy money in an inflationary time? Could be.

What I do get out of all this though, is the very real sense that unlike the Volcker days when he was arrogantly sure he was doing the right thing, today the FED seems mousy.

Now, my silly mind has me picturing Janet Yellen dressing up as Minnie Mouse this Halloween. Geesh-TGIF!

S&P 500 (SPY) Into 2015 resistance so thinking it will take a catalyst to make this go much higher.

Russell 2000 (IWM) Inside day. Needs to reclaim 116 and hold 115.50

Dow (DIA) We are almost at the terror at 18k here, which is my way of saying that resistance overhead is big

Nasdaq (QQQ) Inside day near the 2015 highs 114.39

XLF (Financials) Accumulation Phase

KRE (Regional Banks) Potential reversal as described above

SMH (Semiconductors) A precursor of move over since it was the first to go up? Possibly

IYT (Transportation) Holding the 50 DMA with 146.50 a point to clear to wake up the trannies

IBB (Biotechnology) confirmed phase change to recovery-but weak close on the 50 dma

XRT (Retail) Once again, could not get the second close over the 50 DMA.

IYR (Real Estate) Inside day and a confirmed accumulation day