If the Sun Shines, The Market Should Warm Up

September 27, 2016

Mish's Daily

By Mish Schneider

Earth Ships Taos, NM

Since the focus on solar energy in Sunday’s Daily, First Solar has rallied about 4-5%. The S&P 500, on the other hand, has declined by about 1% this week.

First Solar is traded in the NASDAQ 100. QQQs, which closed last Friday at 118.33, ended today’s session only marginally higher.

Looking just at the percentage of performance in this very short time-frame of two days, that puts First Solar well ahead.

To add to the anomaly, oil prices, which often work in close tandem to alternative energy prices, fell. Oil has the distinction of having one of the worst performances on the board thus far this week. It also breaks with the close relationship it traditionally takes with solar.

The theory I put forth on Sunday supported the notion that if oil and sustainable stocks rallied, that could be the catalyst for more market rally. What then do we make of falling oil prices, rising solar stock prices and a stock market basically flat?

Granted, it is only Tuesday. Nevertheless, if we assume historical relationships and price patterns to mean anything at all, something will more than likely give way.

It could be that the heavily shorted solar stocks have had the normal amount of short covering we see so often in bear markets.

It could be that the Goldman Sach’s downgrade of oil spooked investors. If oil gets much cheaper so might solar retreat. If oil shrugs off the downgrade, I expect solar will remain strong.

What about the overall market? Who better to ask than the Modern Family.

The Russell 2000 holding onto the Bullish Phase is Granddad’s way of telling us that he’s optimistic. However, he holds the phase only marginally. We can consider that tempered optimism.

No doubt a big reason why rests with his wife, Granny Retail. I imagine that if XRT breaks 43.00 Gramps will react in kind and fall. If she rallies above 44.17, IWM will not be able to control his enthusiasm. Granny rules.

Their siblings, Biotechnology, Semiconductors, Transportation and Regional Banks regained their footings. Except for Semiconductors, the rest are still trading slightly lower than Friday’s closing price.

If we employ linear thinking and add up all of the aforementioned performances, optimism has the advantage. As in the photo above illustrates, when you place huge solar panels atop floor to ceiling windows, the sun should warm the Modern Family’s house. That is, in a sunny climate.

S&P 500 (SPY) Better if can clear over 217 and hold 215

Russell 2000 (IWM) 122.35 the 50 DMA. Through 124.60-75 area much better

Dow (DIA) Rejected any thought of Gremlins at 18k.A move above 182.30 better

Nasdaq (QQQ) Should hold around 117.75

KRE (Regional Banks) Unconfirmed bullish phase

SMH (Semiconductors) 66.75 support

IYT (Transportation) 144-146 the resistance to clear. 141.00 support

IBB (Biotechnology) Through 298 should see 300 and probably beyond

XRT (Retail) Inside day within a critical range

IYR (Real Estate) 81.30 support held

ITB (US Home Construction) Needs to clear 28.00

GLD (Gold Trust) I like where it held today.