December 16, 2014
Mish's Daily
By Mish Schneider
Phife Dawg “Lyrics to Go” 1993
Market’s got game, I’ll give it that! Bouncing back like a kid playing basketball donning a new pair of Air Jordan’s, the Dow was down early Tuesday, then slam dunked a layup scoring over 240 points, mocking the 50 DMA. Yet, the Dow wound up benched with a technical foul after failing the 50 DMA.
Same game for SPY while NASDAQ, tested, held then failed its 50 DMA for an unconfirmed warning phase. My eyes were focused on the small caps IWM. Both its 50 and 200 DMAs are well lined up making this compelling as the leading indicator for now along with oil, the Russian ETF and interest rates.
By the end of Tuesday’s session, sadly, all indices failed. The SPY and DIA confirmed the warning phases, IWM confirmed the bear phase.
To repeat from Monday night’s daily, typically, the next 3 weeks are among the most profitable for the year. OPEC has been higher 80% of the time during options expiration, which happens this week. Since 1980, the SPY has been higher in December 82% of the time when the market has been in a bullish phase. Losses are generally less than one percent. The biggest drawdown was in 1986 at 2.8%. Looks like 2014 will give that drawdown statistic a run for its money.
Oil had a green close with yet another day of better than average volume. That means we need some level of confirmation before we say with confidence that a bottom could very well be in place.
The Russian ETF (RSX) has even more potential for a blow off type bottom. That too needs to confirm and will add sparkle if can clear and close above 15.00.
Interest rates continue to present as a flight to safety with the FED announcement on their December meeting coming up on Wednesday. The Wall Street Journal tweeted 5 important clues to watch for concerning future policy:
1. The Fed to drop from the statement its pledge to hold short-term rates near zero for “a considerable time.”
2. News of strong job growth to support their overall optimism on the US economy.
3. The slide in oil prices perceived as a boost to the consumer driven economy
4. A decline in market-based inflation expectations (caveat on the potential risks to financial stability).
5. The potential for recession in the Eurozone that will behoove the ECB to keep rates low and our dollar strong
To keep it simple, watch the reaction to the rates post Fed announcement and more importantly, the follow through or lack thereof afterwards. Keep spying oil, the small caps (especially the moving averages) and the Russian market.
Risk factors have to prevail on all trading decisions. Finally, understand that a good pair of sneakers like Air Jordan’s can give you a false sense of possessing Michael Jordan-like skills. Clearly, reality comes back to haunt you!
S&P 500 (SPY) Inverted hammer doji-and that’s where this week began-let’s see where it reconciles
Russell 2000 (IWM) That’s 2 inverted hammer dojis-the war continues between the bulls and the bears
Dow (DIA) Yet another inverted hammer doji-see Sunday’s eve watch for details
Nasdaq (QQQ) Filled the runaway gap-usually that means the end of a rally for real-not to mention the warning phase
XLF (Financials) Hammer doji inverted under the 50 DMA
KRE (Regional Banks) Closed green but still needs to clear 39.32
SMH (Semiconductors) Definitely faring better than the others and far from the 50 DMA. You guessed it-an inverted hammer doji
IYT (Transportation) On the 50 DMA
IBB (Biotechnology) Nearing the 50 DMA
IYR (Real Estate) Near the 50 DMA and retraced to a trendline breakout that goes back to October-if holds better
ITB (US Home Construction) 24.00 key
USO (US Oil Fund) To make this more than a one day bounce, either has to have a green inside day or take out and hold over 21.73
TBT (Ultrashort Lehman 20+ Year Treasuries) TBTs inverted hammer doji on new lows-worth watching
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