December 8, 2016
Mish's Daily
By Geoff Bysshe
The big news today is that the Transportation Index and its ETF (IYT) finally broke their highs set in November of 2014. This means the latest leg up in the DIA’s bull market is now confirmed according to Dow Theory.
Dow Theory suggests that for a trend in the Industrial Index (INDU or DIA) to continue, the Transportation Index (represented by the ETF of IYT), should make new highs along with any new highs made by the DIA.
DIA broke its 2015 highs in July of this year, but IYT has not been able to confirm that breakout until today!
Time to Celebrate!?
Art Cashin, the Director of Floor Operations at UBS, and a very savvy market analyst suggested today that IYT’s achievement was partly responsible for what felt like panic buying in the last couple hours of the day.
This may sound like good news, but there’s a flip side to this story.
Markets have a tendency to be attracted to past highs and lows much like humans are attracted to attaining goals.
For example, and speaking from experience, it’s not uncommon for someone to set a goal of completing a marathon, and with that goal believing that after the marathon you will be in great physical condition and therefore you’ll continue to maintain your condition, because you will have worked so hard to get there.
Sounds logical, but it’s usually exactly the opposite.
After completing your marathon you feel entitled to a break. In fact, you may even legitimately need a break! That ‘short’ break turns into a longer and longer ‘break’. At what point does a break, become the new normal?
Markets are the same way, especially when they work too hard to achieve their goal.
In the case of IYT, it has rallied a remarkable 16.5% over the last 5 weeks in order to reach its admirable goal of new highs!
The last time IYT has had a move of this magnitude that was into new highs (not bouncing after a precipitous drop) was November 2014 which led to a 4 month consolidation followed by a big drop.
The only other time that was close to a 16% 5 week run into new highs occurred in November of 2016 which led to a 2 month consolidation before further gains.
So let’s celebrate IYT’s achievement, but expect it to rest. After all, markets are human too.
S&P 500 (SPY) Last night I said watch for the range of 221.40 to 221.80 to control the trend’s next move. Today’s low was 221.38 and the intra-day breakout took off after consolidating on top of 221.80. These points were easy to see because we had daily levels to work with, but today the SPY is out in record territory. It's a good time to look for support at the floor trader pivot area, 223.50
Russell 2000 (IWM) Continues to lead. Support levels are around 135.40 and 134.90 area.
Dow (DIA) Extremely extended.
NASDAQ (QQQ) Has a lot of catch up to do, but I’m not sure it will. Expect big resistance at 119 and support at 117.
KRE (Regional Banks) Waiting for a pullback.
SMH (Semiconductors) Acting like a leader again, but may need to rest before it can break 72.83. Look for support around 71 and 70.20
IYT (Transportation) Finally took out it’s 2014 high. Needs to rest to establish new trading levels.
IBB (Biotechnology) Under pressure due to president elect’s comments to keep prices down, and why should traders buy it with so many other opportunities. 262 area should be good support, and if the other areas of the market calm down this may pick up. I’d wait for it to clear 275.50 before considering it.
XRT (Retail) Yesterday I said this may surprise investors to the upside into year end. Today it cleared its major breakout level, but it had the wind at its back. Should be support around 47.15 and it must hold 46.80 area.
GLD (Gold Trust) Over 112.40 it may start to bounce.
GDX (Gold Miners) Consolidation continues. Key levels to break are over 22 and under 20, otherwise it’s just waiting.
USO (US Oil Fund) Get interesting at 10.80 support or over 11.50 at which point it would still need to clear the major level of 11.80.
TLT (iShares 20+ Year Treasuries) Got stuck at the 120.40 resistance level today. A break over 120.60 could lead to a bounce, but a trade below a prior day low could spark another selloff.
UUP (Dollar Bull) Correction time unless clears 26.34. 25.80 in focus
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