Pastures of Plenty From Dry Desert Ground

May 4, 2015

Mish's Daily

By Mish Schneider

Pastures of Plenty Woody Guthrie

Over the weekend, we saw friends for dinner. The wife is Asian and the major reason I forayed into the Chinese New Year analogies beginning with the focus on 2014’s Year of the Horse to 2015’s Year of the Sheep/Goat/Ram.

Naturally, the current state of the stock market came up in conversation. The question most of our friends ask us is prophetical in nature-“Is the market going to crash?" the major question of late.

I found myself describing the now into its 5th month trading range as a fenced in pasture, one that is capable of keeping sheep in and predators out. I even drew a large square for them illustrating how the top and bottom of the square represent the highs and lows thus far in 2015 and the sides, the months and price levels. The actual activity of course, continues to appear as sheep.

Sheep do well in one to 300 acre spaces. However, they should never be kept alone as they get lonely, bored and potentially destructive. Therefore, having a few sheep together keeps them happiest and healthiest. If we substitute sheep for our Modern Family, again, like sheep, they have stayed pretty much together yet rotate fairly often where they graze.

Overall though, the Modern Family has not only been the best source for keeping a macro view, but also for viewing them within the perimeter of an imaginary pasture (or a very real trading range), which in turn, has kept our portfolio from any real danger.

I have a 6 chart screen as one of my daily setups. The 6 charts represent the Russell 2000s (IWM), Retail (XRT), Regional Banks (KRE, Semiconductors (SMH), Biotechnology (IBB) and Transportation (IYT). How they rotate from one another yet ultimately stay within the boundaries of the range is why I will not give up on the sheep analogy just yet.

I will add, that once this now substantially enduring trading range breaks one way or another, the follow through should be equally substantial. But that’s for a future discussion.

Monday’s session made yours truly particularly happy since I have been rooting for Regional Banks all year. KRE returned over the 50 DMA and back to an unconfirmed bullish phase with an inside day (when the trading range is within the boundaries of the trading range from the day prior.)

As for the rest of the family, they all traded in line with the indices with the exception of Semiconductors, who so typically of recent sector rotation, did its job Friday and rested up on Monday.

Adding one more layer is the air show in the Dow at around 18,000. The market has absorbed the now more obvious increase in Interest Rates this year and continues to cruise at altitude.

Presently, I am looking for the sheep to stay safely inside their pasture and the aviators to keep the Dow plane at altitude. Until we know if the market will break current fences, stay calm but definitely not complacent.

S&P 500 (SPY) Confirmed the BULLISH phase with resistance at 212.48, support at 209.

Russell 2000 (IWM) Over 123.44 much better. Under 121, and even if the other members hold, will make me way more cautious

Dow (DIA) Confirmed BULLISH phase. Over 181.54 better and under 179.58 back beneath the 50 DMA

Nasdaq (QQQ) 109 good nearby support, 107.55 the better support. It actually corrected back 50% from the 111 highs to the 107 lows-tomorrow could be pivotal and more decisive.

XLF (Financials) Big day with a return to the bullish phase and a reason to keep overall positive

KRE (Regional Banks) After the inside day, thinking a close over 41.50 should ignite it to new highs.

SMH (Semiconductors) As long as this holds around 56.00, friendly

IYT (Transportation) Confirmed the improved phase over the 200 DMA making 156.25 area key support.

IBB (Biotechnology) Would have preferred to see this close over the 50 DMA, but I do like that it closed over Friday’s high

XRT (Retail) Good confirm of a possible bottom if holds over 97.27

IYR (Real Estate) Couldn’t quite close over the 200 DMA but didn’t fall apart either with the increase in rates

ITB (US Home Construction) Unless this gets back over 26.62, looks a bit heavy

GLD (Gold Trust) Unclear chart pattern but phase remains bearish

GDX (Gold Miners) 20.00 near term support. 17.00 the big support and over 21.30 a game changer for real

USO (US Oil Fund) Inside day. Still like this as a bottoming pattern

XOP (Oil and Gas Exploration) Down day but holding the fast moving average at 53.75