In Search of Momentum: Market Internals Tell All

February 23, 2016

Mish's Daily

By Mish Schneider

Monkey Man-The Rolling Stones

Bulls and Bears-can you relate to this?” I was bitten by a boar, I was gouged and I was gored…”

For many, in this Year of the Fire Monkey (as opposed to the Stone’s “fleabit peanut monkey”), the volatile days in the market of up or down 200-400 points can certainly feel that way (boarish).

Tuesday’s session typified one of those days when stepping back and viewing the market as a whole equal to the sum of its parts becomes the best trading strategy.

To clarify, and at the risk of oversimplification, I find focusing on my Modern Family comforting.

As one who loves stock picking, this year, more than ever before, I am more fixated on the macro picture and particularly how my one index (IWM) and 5 sectors (XRT, IYT, SMH, KRE, IBB) are doing.

I keep a keen eye on Commodities as well. Gold, Oil, Sugar, Coffee, Corn, all have my attention. Interest Rates have my attention. The US Dollar has my attention.

A while back I wrote that “Fire Monkeys leap from tree to tree, looking for the one that has the most fruit.”

Leaping from tree to tree looking for fruit is like trading both long and short looking for momentum.

MarketGauge’s new momentum indicator is like a looking glass, reflecting the market internals.

Even with Transportation (IYT) in a recovery phase and with the fast moving average crossing above the 50 DMA, our indicator shows that the short and longer term momentum is negative.

The Russell 2000s (IWM) may have held up better than the rest of the indices Tuesday, but has a way to go to get out of a bearish phase and reverse its negative momentum.

Retail (XRT) looks very similar to IYT in both phase and momentum.

Regional Banks (KRE) and Biotechnology (IBB) look even worse than IWM.

Semiconductors (SMH) have negative momentum but at least are trading above the 200 week moving average.

Commodities, looking at 2 ETF baskets, DBA (agriculturals) and DBC (Commodity Fund Index) are a mixed bag. DBA short term has positive momentum, longer term more neutral to negative. DBC, shorter-term has neutral momentum, longer term still negative.

20+ Year Treasury Bonds (TLTs) momentum is positive all around. US Dollar has short-term negative momentum, longer term positive.

If phases are positive in 2 family members, while momentum remains negative all around, are we bullish or bearish?

If rates are bullish and show positive momo, then what?

If commodities are turning neutral to positive in momentum, how does that fit in?

To avoid “bites, gouges and gores,” I’m giving the market more time to play itself out. My portfolio consists only of instruments with neutral to positive momentum. Even those positions are light.

“Well, I hope we're not too messianic
Or a trifle too satanic, We love to play the blues”...The market ‘s just a Monkey Man. I’m glad I am a Monkey Woman too!

S&P 500 (SPY) Pulled back from the 50 DMA. Will be watching to see if this pullback was simply a way for it to power through it next time-or a failure in line with the bearish phase

Russell 2000 (IWM) 102 resistance keeping further rally at bay. 98.50 underlying support at the 10 DMA

Dow (DIA) Like SPY, right into the 50 DMA resistance.

Nasdaq (QQQ) 103.50 is monthly resistance to note with support now at 99.80

Volatility Index (VIX) Bounced off the 50 DMA and might have more upside to 26.75

XLF (Financials) 20.87 the 200 week moving average pivotal

KRE (Regional Banks) 35.81 pivotal with support down to 34 if fails that level

SMH (Semiconductors) 50.00 big resistance with the 50 DMA just above. 47.95 minor support to hold

IYT (Transportation) 128 time to think short. Otherwise, could be just a pullback. Not sure yet

IBB (Biotechnology) Last week’s high 267.60 and must hold 255

XRT (Retail) Confirmed Recovery Phase. 41.43 the 50 DMA pivotal

GLD (Gold Trust) Gapped back over the 10 DMA with 118 resistance and 115 support

GDX (Gold Miners) Closed on new multi-month highs with 17.50 now good support