Market Feeds Traders Their Just Dessert

March 5, 2017

Mish's Daily

By Mish Schneider

blankA favorite anadrome: Stressed Spelled Backwards is Desserts.

Last week ended with the market giving stressed out traders their just desserts.

Stressed out traders makes justifiable sense. After all, like the photo above, the banana split looks tempting and delicious. However, after consuming one, the sugar high might make you feel queasy.

Standing at the top of a mountain is empowering as long as you don’t look down. Buying at what could turn out as the top of the market is like eating a banana split after you’ve consumed a carbo-loaded meal. Tum-Tum-Tum-Tum.

Part of trader’s stress relates directly to the Federal Reserve. Their “wait-and-see” about a March rate hike is a bit nerve-wracking.

Most of the stock market rally has occurred on the back of great expectations. The prospect of tax reform, deregulation and government spending are what has driven the market to all-time highs.

Yet, political risks remain in Europe, particularly in France. Brexit has yet to play out. The market still wonders if Trump can deliver?

Is an overextended market with-

  1. A) Several precarious unknowns that
  2. B) Seemingly accepts a rate hike

Investors just dessert?

The Modern Family gathered for its just dessert last week at Frost, A Gelato Shoppe.

Granddad Russell 2000, old enough when diabetes becomes a real threat, ordered a strawberry frozen yogurt. His sugar levels spiked. IWM weakened, yet not enough to put him in shock.

Regional Banks (KRE), the Prodigal Son, felt cocky after the Fed speak. He ordered a hot-fudge caramel sundae figuring the sugar would fuel rather than deplete him. The result? A bit of both. KRE closed up on the week but well inside the topping reversal candle from last Thursday’s sell off.

Sister Semiconductors ordered mango sorbet. The extra weight she gained after making new highs 2 weeks ago encouraged her to watch her figure. SMH basically closed unchanged on the week.

Transportation (IYT) needed extra calories after purging itself earlier last week. Therefore, Trans ordered a pint of Southern Butter Pecan Gelato. Even if only a temporary bloat, it worked. IYT rallied closing just above a critical price inflection point.

Guess what Big Brother Biotechnology ate? A double banana split made with banana gelato. IBB’s sugar attracted speculators who bought on the adrenaline rush. IBB closed over the 23-month moving average for the first time since 2015.

While Trans chauffeured the Family to Frost, A Gelato Shoppe, Prodigal KRE offered to treat everyone. Biotech kept the stomach antacids at the ready while Gramps Russell injected himself with insulin.

Meanwhile, poor Granny Retail waited for the rest of her kin at a table outside. She consumed nothing more than a cup of hot water with lemon. At risk of total collapse, XRT anxiously and repeatedly called the Federal Reserve from her cell phone. She left voice messages. “Hello,” she said. “Please don’t forget about me, 70% of the GDP!”

“My friend asked me if I wanted a frozen banana. I said ‘No, but I want a regular banana later, so…yeah’” Mitch Hedberg

S&P 500 (SPY) Held the runaway gap at 237.50. Also closed well enough to negate a reversal pattern for now.

Russell 2000 (IWM) The weakest close of the four indices. 136.70 I the 50 DMA. Needs a move back over 140.50 to give this new life.

Dow (DIA) Runaway gap held but the close wasn’t great. A gap below 208.37 would not be good.

Nasdaq (QQQ) Closed well giving the best chance to follow up on Monday.

KRE (Regional Banks) An open under 57.75 would not be a good way to start the week. A start over 58.50 would be better

SMH (Semiconductors) Unless this clear 77.50, looks toppy especially if fails 76.40.

IYT (Transportation) Closed over 171.15 which is hopeful

IBB (Biotechnology) Strong finish-must hold 295 to stay in the game

XRT (Retail) 42.00 ultimate support. A miracle would be a move over 43.80

IYR (Real Estate) Tested the 200 DMA and held. Has to keep holding

GLD (Gold Trust) I’m not negative until it breaks 114. I like this better over 118

SLV (Silver) Returned above 17 but not enough to get it back over the 200 DMA.

GDX (Gold Miners 22.00 pivotal

USO (US Oil Fund) 11.06 the 200 DMA held.

XOP (Oil & Gas Exploration) Trying hard to hold the 200 DMA at 37.72

TAN (Solar Energy) Held 18.20 so still a contender

TLT (iShares 20+ Year Treasuries) 118 support and 120 pivotal resistance

UUP (Dollar Bull) Hard to read after Friday’s decline

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