March 19, 2018
By Mish Schneider
The road is perfectly straight and dry. However, it is heavily trafficked.
One impatient driver decides to pass as many cars as he can by accelerating well beyond the speed limit.
He puts metal to the pedal, disregarding the oncoming traffic.
Lucky for him, he has a seatbelt on while his car flips over several times.
The car stops upside down. The man, hurt, still lives.
The bulls in the US dollar, the overall market, and the interest rates, have tried really hard to beat the market conditions.
They’ve pressed their collective feet on the gas pedal, ignoring the market signs to stay in their lane.
And why not?
Up until the last month or so, hazardous road conditions have been merely temporary speed bumps for the bulls.
With remaining bulls way too cocky, a single overcompensating turn of the wheel while driving at speeds way too fast for a country road, the lucky ones had on a seatbelt.
Last week I wondered, if SMH faltered, what would be the ramifications for the rest of the market?
I also examined the Fed’s intention to raise rates and the dollar’s vulnerablity breaking beneath a 7-year trend up. I featured the Currency Shares EURO Trust or the ETF FXE.
I’m sorry bulls, but today, I hope you had your protective stops in place.
I’m sorry dollar bulls, because today the dollar fell by .45%.
I’m sorry interest rate bulls, because today the TLT’s fell by .32%.
And I’m really sorry for the tech bulls, because today Semiconductors (SMH) fell by 1.6%.
And the ramifications for the rest of the overall market?
NASDAQ 100, proving another theory that the bigger they are the harder they fall, had the worst performance of the 4 indices dropping by 2.23%.
The worst part? Like our overzealous driver, the volume was well above the average daily volume.
If the seatbelt wearing bulls got out of their longs today, not so bad.
Yet, what does this action mean going forward?
Potentially, the worst cast scenario I have written about a lot.
A falling dollar, rising rates, economic slowdown (just look at the Retail Sector XRT) and the real potential for commodities to heat up inflation.
Let’s review the action of SMH (Semiconductors).
After the confirming bear flag last week, and on high volume, the drop could yield a 5-10% decline from the highest price.
And, sometimes, the high price before the reversal, yields the ultimate top.
SMH can move to anywhere from 106-103.
105.35 is the underlying 50-day moving average. That means, with all of SMH’s Modern Family’s siblings in warning phases except for Regional Banks (KRE), the bulls who exercised caution, could see a bounce from there.
Until then, rushing to your destination by throwing caution to the wind could total your P&L.
S&P 500 (SPY) Confirmed the warning phase. That means, if this cannot regain 275, could see 265 next. Now, a bit oversold so a digestion day is highly probable.
Russell 2000 (IWM) Broke 156 intraday yet recaptured it by end of day. And, still in bullish phase. 154.70 the 50-DMA.
Dow (DIA) 250 pivotal area. 242 support.
Nasdaq (QQQ) 166 50-DMA. Must or bust.
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