February 2, 2016
Mish's Daily
By Mish Schneider
Monkey Business
Next Monday begins the Year of the Monkey in Chinese New Year. This recurs every 12 years. Last Year of the Monkey was in 2004.
I checked back to how the S&P 500 did in 2004 to see if I might get some interesting comparisons. Not really. In fact, 2004 saw mainly consolidation under the 80-month moving average. The market exploded in 2005 until its peak in 2008.
Since Chinese astrology also associates animals with one of the five elements, this year we have the Fire Monkey. In 2004 the element was wood-very different.
While wood monkeys are compassionate and stubborn-makes sense for a market to consolidate under that element-fire monkeys are adventurous but irritable. Also noteworthy is that there will not be another Fire Monkey year until 2076. (I really doubt I will be here to write about this so pay attention now!)
What does an adventurous but irritable fire monkey mean for the Markets?
Why do I give credence to Chinese astrology?
For starters, 2 years ago or 2014, the Year of the Horse, the market behaved accordingly galloping with huge rallies and then bucking with huge selloffs. Then last year, Year of the Sheep, the market spent 8 months in a giant pasture-like trading range, relatively peaceful with low volatility.
Monkeys, known to be clever, tricky, and playful masters of the practical joke, also love to be challenged.
Therefore, a fire monkey, the most active and aggressive of the monkeys, will create a volatile market. Furthermore, investors need to be equally agile.
The Fire Monkeys leap form tree to tree, looking for the one that has the most fruit. Hence, the market will rally or crash depending where the largest order flows and trader sentiment may lie.
Monkeys like to be in control therefore, best not to approach the market recklessly this year or try to chase the moves. To work with a fire monkey requires patience. Thinking through trades before acting on them will safeguard your money.
Waiting for setups that fit in line with the type of trader you are (day, mini or swing) and then carefully calculating risk/reward is tantamount to success.
The action from last Wednesday until this Tuesday is a prime example of what I expect more of as this year unfolds. Looking at the S&P 500, patient bulls got to follow order flow to the upside for about a $5.00 move bucking the downward trend.
Patient bears got to short closer to overhead resistance (the 50 DMA) once the rally ran its course. Assuming the downward trend will continue, bears can lock in profits and trail down stops. After all, our trickster monkey will not go straight down. As soon as the sell orders dry up, the monkey will jump to the next tree looking for the buy fruit.
I wish you great fortune this Monkey year. 祝你猴年发大财。
Special Note: I’m doing a webinar teaching you how to deal with this monkey. Please keep an eye on your email and save the Date – Thursday, February 4th at 8:30 EST.
S&P 500 (SPY) Landed right on the 10 DMA and well above the January 6-month calendar range low. 190 should be pivotal, 185.52 support and 195 remains resistance
Russell 2000 (IWM) Unlike SPY, closed beneath the 10 DMA but also well above the JCRL. 100.30 the 10 DMA.
Dow (DIA) Held the 10 DMA at 160.72
Nasdaq (QQQ) 102.30 area pivotal. 100 Support and over 105 bananas!
Volatility Index (VIX) If this mirrors the market, then it did not get back above the 10 DMA
XLF (Financials) Back under the JCRL proving fins not the place to find strength
KRE (Regional Banks) Same here as with XLF
SMH (Semiconductors) If can recapture 50.00 fine. If not, has room down to 46.14
IYT (Transportation) 125 resistance and 117.67 support
IBB (Biotechnology) Broke that mini bear flag and measures down to around 250
XRT (Retail) Hovering on the 65 weekly moving average at 40.59. We can call that pivotal and key
IYR (Real Estate) Hanging onto support but for how long?
GLD (Gold Trust) Approaching the 200 DMA and still looks higher. Took some profit today near the highs
GDX (Gold Miners) 15.00 is the spot to clear which will take over months of work
USO (US Oil Fund) Back below the JCRL 8.64. 7.92 is the recent low to defend with a move back over 9 confidence building
XOP (Oil and Gas Exploration) Held the 10 DMA and above the JCRL so would look here for a move back over 26.81 for renewed buying
UNG (US NatGas Fund) Next time this clears 8.00 would be better
TAN (Guggenheim Solar Energy) Still seems to be stalled here. Needs to clear 25.25 on a closing basis.
TLT (iShares 20+ Year Treasuries) 127.92 the highs from January is not support
UUP (Dollar Bull) Unconfirmed phase change to warning. Need a second day to confirm
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