How Reliable is This Rally?

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Rollin’ On The River

Tina Turner

Thank you Geoff Bysshe and Jonathan Griffin for covering for me while we vacationed to Alaska. It was an amazing trip!

So maybe our last two weeks were more like Cruising on the Pacific, but we sure did have something in common with the Market. We began the journey with rough seas, which then calmed to glass-like conditions steadying the passengers aboard ship, while our Captain remained ever vigilant.

As both the Market and our cruise ship’s “Big wheel keep on turning”, I had the chance to step back and return fresh.

On a cruise ship, the 24/7 buffet is a double-edged sword. Abundant choices, temptation is everywhere and everything looks tasty. Eat too much though, and well, you can fill in the possible ramifications yourself.

Hence, the market welcomed us home with such a buffet! Given the Dow’s more than 2% rise leading all indices higher, and given the up to nearly 7% rise (if we include the China ETF FXI), in most other sectors, what a feast to choose from!

Short-term Versus Long-Term View

My Granddad of the Modern Family, the Russell 2000 (IWM) remains a reliable indicator or spokesperson if you will, for the other indices. On the weekly and monthly charts, it has broken down from major moving averages. The weekly chart looks as though a bear flag could be forming.

On the positive side, IWM cleared back over the September calendar range high at 114.12 which could mean more bounce is in store perhaps up to the better resistance around 118.

In October 2014, IWM broke under the weekly moving average and within 5 weeks, sailed above that level never really looking back until it failed that moving average again the week of August 21^st 2015.

Now, unless IWM recaptures 118.80 and holds there, assume that under 114, another storm is coming.

That’s the paradox considering the insidious predictor, how China fares over the next month, remains a precarious thorn in the US Market’s side. All investors and the Federal Reserve are watching China prudently.

That’s not to say there aren’t now nor will there be in the future, great trading opportunities, especially in individual equities and the ETFs listed below that do their own thing.

Interest Rates are most intriguing.

The 20-Year Long Bonds (TLTs), broke the 50 DMA and entered an unconfirmed Bear Phase. That suggests a tightening rather than easing action coming to us by the Fed.

Since cruise ships are monsters of engineering relying on electrical systems and cables, if they lose power, emergency generators are at the ready.

The Market, on the other hand, should it lose power cannot guarantee an equally efficient return to safe port policy.

S&P 500 (SPY) 200 will be the next big resistance to clear with near-term support at 195, then 190

Russell 2000 (IWM) 116 next resistance with 114 support.

Dow (DIA) 163 support, minor resistance 165 better at 168

Nasdaq (QQQ) Gets interesting at 107 if can clear. Otherwise, 103 nearest support level

XLF (Financials) 24.00 big resistance

KRE (Regional Banks) Fave sector ETF with 41.35 the 200 DMA to clear and 40.00 to hold

SMH (Semiconductors) 51.40 is the overhead 50 DMA

IYT (Transportation) 146 huge pivotal area to stop at or clear

IBB (Biotechnology) Crossed back over the 200 DMA for an unconfirmed warning phase. 342 must hold

XRT (Retail) Granny back over the weekly moving average making 93.60 pivotal

IYR (Real Estate) If bottom picking, this has support at the 200 DMA and had a decent reversal after Friday’s new low.

XHB (US HomeBuilders) Unconfirmed return to a bullish phase-only ETF to do that. Has to hold 36.90 on a closing basis

GLD (Gold Trust) 108 the 50 DMA resistance

USO (US Oil Fund) This is beginning to resemble a flag formation, potentially building strength before taking out the 50 DMA at 15.73

TAN (Guggenheim Solar Energy) Over 30.93 clears the 200 weekly moving average.

TLT (iShares 20+ Year Treasuries) Unocnfirmed bear phase if closes a second day under 121.05. Then see 118

UUP (Dollar Bull) Will the FED risk a stronger dollar? 25.00 huge area to hold

FXI (China Large Cap Fund) Could see move to 38-39.00 level before hitting a wall