I Live, I Die. I LIVE AGAIN!

May 18, 2015

Mish's Daily

By Mish Schneider

Mad Max: Fury Road

This weekend, we went to see Mad Max in 3D! Some of the characters reminded me of a combination of Jabba the Hut, Zombies, and the Man (he was nameless) from “The Road.”

Our entire New Mexico office staff got together to eagerly don our 3D glasses because for the past 2 weeks prior, and in spite of the fact we all anticipated the absurd characters, far-fetched plot (or lack thereof) and CGI sets, they have heard me go on and on about Mad Max and its message about water.

Quite honestly, I had no idea just how much the plot would center on water; however, coincidence or not, the ETF for water (PHO) had over a 3% move last week and began this week equally strong.

Commodities in general are a huge focus currently. Silver, although not on 2015 highs (17.89) has left a significant bottoming pattern. Gold has virtually ignored the rise in the 20 Year Long Bonds (or decline in TLTs). Silver might be shinier, but Gold’s move is impressive.

With life imitating art, oil (also in shortage in the post-apocalyptic world of Mad Max) took a backseat to the essential need for water. USO the United States Oil Fund, like many soft commodities (corn, sugar, coffee) are basing, or at least trying to.

All of this while the Dow made new highs! Historically, when commodity prices are high, they serve as a “tax” on corporate earnings worldwide. Likewise, when commodity prices are low (especially oil and, increasingly, natural gas), they act like a “tax cut” for corporations. This interaction results in a counter-cyclical relationship between commodities and U.S. equities.

Yet, like so many other historical relationships lately, old timers who tend to stick to the old paradigms, now have to stay open to the Millennial’s world of shifting paradigms.

The good news is that my reliable Modern Family all woke up happy. To my mind, in order for this equity rally to sustain, (commodities I’m looking out for much longer), the Russell 2000s (IWM) have to stay in the game. Retail (XRT) has to hold above the 50 DMA. Semiconductors (SMH) and Biotechnology (IBB) simply have to keep firm but not lead. Regional Banks (KRE) or really the financial sector in general can take the lead and Transportation (IYT), which cleared the 200 DMA, has to get comfortable again.

Mad Max: Over the top? Radically visionary? Extravagantly deranged? All of the above?

Many say the same about the market!

S&P 500 (SPY) A year ago the breakout projected a move to 220. Now, looking more feasible.

Russell 2000 (IWM) Played catch-up and now in an unconfirmed bullish phase looking for a second day.

Dow (DIA) New high intraday but then closed at 182.68, the old high

Nasdaq (QQQ) Has room to the top-111.16. I figure by the time it gets there,

SPY DIA will look really overbought.

XLF (Financials) Over 24.90 takes out all of the 2015 consolidation

KRE (Regional Banks) He’s back! New 2015 high.

SMH (Semiconductors) Just needs to hang out and not selloff

IYT (Transportation) Unconfirmed warning phase looking for a confirm

IBB (Biotechnology) Just needs to hang out and not selloff