Phases: A Traders Way to Gauge Face Value

April 7, 2016

Mish's Daily

By Mish Schneider

Country Music Legend and “Okie from Muskogee” Merle Haggard, died on April 6^th. Also the day he was born, that’s the sort of poetry one might hear in a good country song.

In the market, the poetry I look for is the birth and death of phases. Highly unusual to see any one instrument birth a new phase only to die on the same day, it happens. That is why we look for a 2-day confirmation of a phase change.

Notable Phase Changes This Week

Perhaps the most notable phase change began last Friday and confirmed on Monday. As it pertains to the Modern Family, that would be Biotechnology.

Regional Banks, another member, also changed phases. Only that has yet to confirm.

In the world of commodities, some have had phase change improvements while others experienced deterioration.

In honor of one of Merle Haggard’s big hits, “Are the Good Times Really Over?”, the four indices have not yet changed phases. The short answer is; we do not really know just yet.

Remember taking the market at face value? Phases are the best way to recognize the “face” and then attach a value to that face.

Biotechnology (IBB) confirmed a Recovery Phase on Monday. Thus far, the rally stopped exactly where the daily chart resistance is. That could mean the rally was more of a dead cat bounce and the phase will eventually fade. It might also mean IBB is the new leader. If IBB holds the 50 DMA, a second stab at resistance will take it higher. Face value-wait for the evidence.

KRE-our Prodigal son-failed its 50 DMA today going into an unconfirmed Bear Phase. A second close under 36.55 tomorrow should further rack the nerves of the bulls and the other Family Members.

Speaking of, Retail (XRT), the Russell 2000 (IWM), and Transportation (IYT) are all in Recovery Phases. Semiconductors (SMH) are in the best phase, trading over the 200 DMA or Accumulation.

The other 3 indices are all in Accumulation Phases as well. A truly mixed bag, I see the biggest issue as a real lack of leadership by any group, except for commodities.

Gold and gold miners continue to lead this year. Silver gapped higher returning to an unconfirmed Bullish Phase.

Meanwhile, soft commodities have had a harder time. Case in point, DBA, the agricultural ETF, is back in a bearish phase.

“Are the Good Times Really Over?”

In the song, Haggard asks, “The best of the free life behind us now,
And are the good times really over for good?”

When it comes to the free life, yeah, the easy time for traders has been over. However, we still have the biggest supporter of an “easy time” for the market out there lurking-the Central Banks.

Will they try targeting longer-term interest rates if they must?

Face Value:

S&P 500 (SPY) 201.50 is where the 200 DMA lives. 204 pivotal 207.14 point to clear

Russell 2000 (IWM) 110-108 major support

Dow (DIA) Has support all the way down to 170

Nasdaq (QQQ) 108 support and 100 pivotal

Volatility Index (VIX) Maybe the flush

XLF (Financials) 21.70 the 50 DMA

KRE (Regional Banks) 36.50 support pivotal with 35.90 next support

SMH (Semiconductors) Inside day-very interesting to watch this one now

IYT (Transportation) Closed right on Wednesday’s low after making a new intraday low. May not be ready to quit yet

IBB (Biotechnology) 276 area to hold