Nature Erodes; The Market Corrodes

November 1, 2016

Mish's Daily

By Mish Schneider

mdaily20161102What’s the difference between a cavernous hole in a mountain made by Mother Nature and a cavernous hole in the market made by understandable jitters?

A hole made by Mother Nature occurs over hundreds of thousands of years. Erosion.

A hole made by understandable market jitters occurs in a matter of months, days, hours. Corrosion.

Yesterday, treasury yields softened. Today, they firmed until they softened.

This week is yet another Fed meeting. Once again, a possible change in monetary policy is on tap. Only what makes this time different?

The Market has a brand-new bag of worries and its brand ain’t Prada. (Unless you think the Devil wears it.)

This Presidential election and the ramifications for the equities and U.S. economy have become enough dynamite to blast a hole in the market.

Last night I asked you, “What Does “Shake it Up” Mean for Your Money?”

We didn’t have to wait but a day to find out.

For over a year I played with the notion of Terror at 18,000 in the Dow-the altitude when a Gremlin appears. The Dow ran up from that number in July. On November 1st, the Dow trades just there.

Whatever the Gremlin looks like to you, if it sits on the wing of the plane and the Dow cannot retake 18k, what should we investors do?

Keeping a cool head, I think about “risk on” versus “risk off.”

Let’s begin with Treasury Bills. Will they remain a “safe” haven? My knee-jerk response? That nagging word again-stagflation. I do not foresee Treasuries as particularly safe going forward.

As the FOMC begins this week, doubtful we will see a rate hike. However, doubtful keeping rates the same will do much for the equities market either.

Will the metals be safe? Initially yes. In 2008, Gold dropped along with the market. Once QE was announced, Gold recovered. By the spring of 2009 when the S&P 500 went into a Recovery Phase, Gold roared.

Why? QE. So, if the FED does nothing, that could temper the Gold. If they go the way of negative rates, I imagine Gold will rally.

In the meantime, we have reduced our exposure to equities even more than we had in early October. Should the Dow hold over 18,000, we will reconsider that stance.

Where we found solace in emerging markets, we are now neutral. As we continue to look at commodities, that too has us light and tight.

Comparatively, that hole Mother Nature made in the mountain is starting to look pretty cozy.

S&P 500 (SPY): 213.50 resistance 211.20 pivotal and 208 the 200 DMA support

Russell 2000 (IWM) 116.95 area the monthly MA it’s been up and down several times this year. 114.17 the 200 DMA 120 resistance

Dow (DIA) 180 pivotal 182.50 resistance to clear 177.28 the 200 DMA

Nasdaq (QQQ) 114.75 the 100 DMA support. 116 pivotal and 118 resistance

KRE (Regional Banks) Inside day. 44 resistance to clear on a closing basis. 43.45 support then 42.50

SMH (Semiconductors Held 67 support and the 50 DMA-best news of the day

IYT (Transportation) 143.25 the 50 DMA support must keep holding

IBB (Biotechnology) Maybe, maybe reversal-wouldn’t that be nice. A confirm would be close over 260-then we have the weekly MA to deal with

XRT (Retail) 40.00 area the underlying support. A miracle would be a move back over 43.00

HACK (Purefunds ISA Cyber Sec ETF) 26.00 support to defend

GLD (Gold Trust) 122.55 support to hold.

SLV (Silver) 17.00 support to hold

GDX (Gold Miners) 25.60 the 50 DMA resistance it could not clear. 24.45 support

USO (US Oil Fund). 10.50 pivotal and back above 10.80 better

TAN (Guggenheim Solar Energy) Made a new 2016 low today.

TLT (iShares 20+ Year Treasuries) Sloppy but good support at 130

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