If Little Boy Blue Had Had A Dog

March 25, 2015

Mish's Daily

By Mish Schneider

If this year patterns in the same way it has patterned since it began, then we can assume that the 3 day sell-off beginning Monday in the S&P 500, placing it just below the 50 DMA but above the 100 DMA, should be as equally short-lived as the rallies have been.

If that is the case, then where might the smart money go? Anything interest rate sensitive would not be my first choice. After all, the FED has left itself ambiguous in that regard. Even though gold and oil based out and rallied, an ease in rates might have helped, but it seems that the real reason for both runs has more to do with the dollar weakening.

Soft commodities have not participated in the gold and oil rallies to date, so not thinking the self-fulfilling, careful what you wish for Ms. Yellen prophecy of rising inflation is coming any time soon.

We came into this week maxed out on the number of equity longs we were willing to hold plus long both the oil and gold ETFs as a hedge. That turned out well. To date, we are super light on the equity longs, which is great for shopping for new positions and how I prefer to buy anyway-on weakness, especially since I have harped on the sheep theory or exactly as mentioned before-short lived scatter (with some slaughter expected) and short-lived breakouts with a more “herd” mentality when rallies occur.

The Financial Sector (XLF) has been concerning all year, relaying danger even after the successful “stress” tests. However, Regional Banks (KRE) are a focus especially if they hold over 40.00. The other sectors that have led (Biotechnology, Semiconductors, and Retail) have nasty looking candles now and need time to settle down.

Homebuilders (ITB) had an inside day holding above the 10 DMA making that group a place to shop should the market stabilize.

In fact, more I think about it, until we see some reason to build up the portfolio again or until the sheepdogs come back, looks like a stock picker’s market.

S&P 500 (SPY) Unconfirmed warning phase with big volume on the sell-off, landing right on the 100 DMA

Russell 2000 (IWM) Big volume exodus but, still my vote for the first index to buy if 122 holds up

Dow (DIA) Broke all moving averages but has a lot underneath as far as historical price support

Nasdaq (QQQ) That Déjà vu? In March 2014, the IWM broke hard while the others held on until April. Although a bit different this March, this did give me pause once it could not make new highs. Landed on the 50 DMA.

XLF (Financials) 23.75 support and back over 24.10 much better

KRE (Regional Banks) Outperformed and held the bullish phase-40.00 support to hold

SMH (Semiconductors) Unless it gets back over 55, could see 52.25 next

IYT (Transportation) The aberrant sheep was first to act out and now has the 200 DMA in its midst

IBB (Biotechnology) Textbook blow off rally last Friday to study

XRT (Retail) Only broke the 10 DMA so still ok if holds Wednesday’s lows-otherwise, trouble here too

ITB (US Home Construction) Best shape comparatively so look here over 27.90

GLD (Gold Trust) Might need to take a breath here near overhead resistance

USO (US Oil Fund) Cleared 17.00 which makes this pivotal now

XLE (Energy) Over 77.95 clears the 3/18 bar high and the 50 DMA

TAN (Guggenheim Solar Energy) If this gets near 40, that is a gift!

TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs more vulnerable looking now but still over the 50 DMA.