July 10, 2016
By Mish Schneider
For roughly a year and a half to describe market conditions, I’ve borrowed and used a concept from two classic TV shows. The Twilight Zone’s Terror at 20,000 Feet and The Simpson’s Terror at 5 ½ Feet. Both episodes depict a lonely passenger who looks out the window and sees a gremlin that nobody else can see.
As recently as last Thursday and after we all went paragliding, we watched the Dow nearly launch to 18,000! Many came up with viable theories why gremlins in the market continue to exist.
And then last Friday, with the help of a much better than expected unemployment number along with an increase in wages, up in the air our paraglider went. The Dow soared past 18,000 with nary a gremlin in sight.
So after 8 attempts to rise above 18k in 2016, turns out the 9th time’s a charm. Therefore, as the market ends the week cruising at altitude, we wonder:
Surprising to many looking for a bottom, the 20+ Year Long Treasury Bonds continued to fall. The TLTs closed the week on new all-time highs.
The US dollar barely budged with the 50 week moving average just slightly overhead. The Euro sits in a Distribution Phase.
Even more surprising to lots of folks, the metals also substantially rallied last week. Crazy, right? The theory that gold, miners and silver must go down because of what exactly? No more fear? Lower Oil prices? Deflation on the rise? The DJIA is up?
Please, take those theories based on historical relationships and throw them in the trash bin. Hit delete once and for all.
Here’s my theory: the metals are rising partly because the Federal Reserve is so dovish. If they aren’t convinced that the economy both in the US and abroad aren’t healthy enough to raise the interest rates, then doesn’t it make sense to hold onto metals? Besides, while the stock market lives in a fantasy world, for so many others reality has a different sting. Hence, our recent and increasing turbulent times.
Looking ahead objectively, here’s what a gremlin might look like.
Another global terror attack. A banking crisis. A devastating weather disaster. Unforeseen fallout from Brexit. An inflation rate that goes out of control. A shocker from The Fed with a rate rise.
But really-let’s enjoy the ride over 18,000 for now. Junk bonds soared this week. That certainly means investors perceive less risk. Amazon made a new high. Folks are shopping online. Oil remains cheap. That puts more money in our pockets.
And what about the Modern Family?
The Russell 2000, our Granddad got feisty. Grandma Retail filled her shopping bags and nearly cleared the 200 daily moving average. Sister Semiconductors is only a computer chip away from the June highs. Big Brother Biotechnology is proud of himself for getting the ball rolling. Nevertheless, he mustn’t sit on his hands.
Transportation, taking Granny’s lead, harnessed up and took a peaceful paraglide ride. And finally, our Prodigal Son Regional Banks held onto the 200 week moving average albeit with some hesitancy as this week begins.
Taking a cue from the mouth of babes, keep wonder in your heart, trade what you see, and while you remain in your seat, remember to keep your seatbelt fastened.
S&P 500 (SPY) Put in a new high for 2016. Now, 210.87 the pre-Brexit high becomes a support area. And we are looking at 213.78 or all-time highs as next resistance
Russell 2000 (IWM) 115-116 important level now to hold. More sobering looking than SPY, if this cannot reach even its 2016 high, I will take that as a reason for caution up here where the fall to ground is further than before.
Dow (DIA) 179.83 the pre-Brexit high now support. Has some work to get over 182 and if does, we are looking at 183.35 the all-time high
Nasdaq (QQQ) The pre-Brexit high of 108.79 now support. Like IWM has to really feel good to even get back to the 2016 high 111.14
XLF (Financials) Needs to get back over 23.07 and hold 22.70
KRE (Regional Banks) Not even close to the pre-Brexit high of 40.60, lets first look at 38.75. Over that better chance. However, if it cannot clear that level, then here’s the banking gremlin we need to watch for.
SMH (Semiconductors) 58.55 is the pre-Brexit high. So will all her strength, she’s behind the SPY and the Dow now
IYT (Transportation) Now that this rallied right to the death cross level, it is either the short of the century with a really low risk or, a sign of yet another failed major phase change signal. 138.25 resistance to clear or the risk.
IBB (Biotechnology) 272 overhead resistance with 273.36 a gap to fill. If does, great. If not, take it seriously
XRT (Retail) Another one like IYT that rallied right to the 200 DMA resistance. Best to watch both of these, KRE and IBB for clues this week
IYR (Real Estate) You don’t see much about this sector on twitter. However, it has rocked and rolled closing back over 2007 crash levels.
ITB (US Home Construction) Weaker than IYR, it did nevertheless clear 28 which is not support
GLD (Gold Trust) 132.28 a monthly MA that hasn’t crossed since late 2013
SLV (Silver) Highest close this year. 19.33 the 200 WMA
GDX (Gold Miners) 31.35 the last swing high in August 2013. 28.44 support or the low of the runaway gap day
USO (US Oil Fund) Held the 100 DMA which if good means it must get back over 11.01. Then, will take a fresher look
OIH (Oil Services) Held the weekly moving average. Ended the week with an inside day. That means if USO gets moving, this is a great place to buy.
UNG (US NatGas Fund) Until it crosses the 50 week moving average all noise.
TAN (Guggenheim Solar Energy) I want to believe but there still is just not enough volume. Unconfirmed Recovery Phase
TLT (iShares 20+ Year Treasuries) I got nothing until we see a firm reversal signal
UUP (Dollar Bull) 25.07 the 200 DMA resistance. 24.70 support
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