March 1, 2017
By Mish Schneider
Last week the market baked a magic 3-layer cake. That’s when from a very thin batter, 3 layers of fudge, custard and sponge cake magically appear.
We saw the Russell 2000 test the custard layer a few times. Today, from that same very thin batter all three layers magically restored.
Only this time, the cake was completely devoured.
The Russell 2000 left nary a crumb for new longs. Additionally, the Dow and the S&P 500 gapped to new highs. Runaway gaps?
Certainly has the makings considering the well over average daily volume that accompanied the gaps.
Same for the Prodigal Son Regional Banks. KRE joins SPY and DIA for a potential high volume runaway gap.
Now that traders had their cake and ate it too, why only one lonely used plate in the sink? Why not a sink full of lick-cleaned cake plates?
Our dear ‘ole poor Granny Retail (XRT) is that lonely plate. Instead of brick and mortar stores rising on the very thin batter, they fell.
For instance, Nordstrom’s fell nearly 3%. Target was down another 2% after yesterday’s dramatic decline.
Other chain stores, especially ones that have to do with home improvement, fared better. Home Depot, for example, rallied to new highs.
However, the muddy water leaking from the faucet might prove worrisome for consumers left with dirty plates to wash.
Two possible scenarios are emerging.
One, Germany’s inflation rate hit the highest levels in four years. To add to the conundrum, most of that rise was due to energy costs. However, talk of the ECB reducing their aggressive bond-buying to keep rates artificially low surfaced.
Secondly, in the U.S. while oil and gas remain cheap, many other commodities had impressive rallies. And this on the heels of rising yields and a higher percentage chance of a March interest rate hike.
Cotton, which impacts clothing prices, neared a two-year high. Corn, Soybeans, Sugar, and Coffee rallied 1.5-2.5%.
Wood made a new all-time high. All this while personal income rose less than expected in January. Meanwhile, personal consumption expenditures had the biggest year-on-year gains since October 2012.
Rising costs of goods accompanied by rising wages good. Rising costs accompanied by flat wages not so good. Worse still, rising costs, flat wages, declining GDP.
So, while the market rallies on everything but the kitchen sink, we might as well throw in the kitchen sink too.
S&P 500 (SPY) Now that we got to 240 on a runaway gap. Target reached. Important now is to hold the gap if good at 238.
Russell 2000 (IWM) 140 first pivotal zone. 141.25 resistance. If breaks 140 139.25 next key to hold or else
Dow (DIA) Runaway gap if holds above 209
Nasdaq (QQQ) 130 key to hold
KRE (Regional Banks) Needs to hold above 58.50 to confirm the runaway gap.
SMH (Semiconductors) Unless this clear 77.50, looks toppy especially if fails 76.40.
IYT (Transportation) Gapped over the key resistance and onto new highs. Now must hold 171.15
IBB (Biotechnology) September high 301.80-took it out, closed below. Watch to see if holds 300 now
XRT (Retail) 42.00 ultimate support. A miracle would be a move over 44.15
IYR (Real Estate) Over a 5-month base so looks good if holds over 79.00
GLD (Gold Trust) 118 support. Could consolidate but starting to think higher
SLV (Silver) 17 pretty much max risk with 17.50 strong resistance to clear
GDX (Gold Miners) Just holding the 50 DMA after testing it. Watching.
USO (US Oil Fund) Amazingly sideways. Could be cup and handle. Could be bear flag-hard to say
XOP (Oil & Gas Exploration) Nice move off the 200 DMA
TAN (Solar Energy) Must hold over 18.20 or so to stay a contender
TLT (iShares 20+ Year Treasuries) 118 support and 120 pivotal resistance
UUP (Dollar Bull) 26.20 now support to hold
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