Red or Green?

September 13, 2016

Mish's Daily

By Mish Schneider


mdaily20160914Uncle Sam looms large. In his left hand he holds a green chili pepper. But to his right, a much larger and spicier red chili pepper tries to get his attention.

The more capsaicin a chili pepper has the hotter it is. When consumed, our brains receive a message that we ate something hot. The hotter the pepper the faster our heart beats and the more we perspire. Endorphins get released.

The market ate a big ‘ole red hot chili pepper on Tuesday. Both the bulls and the bears must have experienced a rise in their heart rates. Bulls most likely perspired more than the bears did. However, I’m guessing everyone in the market saw an uptick in endorphins.

Uncle Sam may have seen the hot red chili pepper from his peripheral vision but in the photo above, he seems to ignore it. Therefore, he still offers us a smaller and milder green chili pepper to eat because Monday’s huge bullish engulfing pattern, although did not confirm on Tuesday, hasn’t necessarily failed either.

I love my Modern Family. They live in the USA. What are they eating- red or green? Or as they say in New Mexico, are they having both on the side (Christmas?)

Yesterday, the ETF for Biotechnology IBB had a classic bullish engulfing pattern (BEP). Defined in the archived 09/12/16 Daily, since IBB did not close above yesterday’s high, the BEP did not confirm.

Nevertheless, although that seems like a red chili, it could just as easily turn out to be green. IBB had an inside day (traded inside the range of the big BEP) and held the 200 DMA. So let’s just say that for now, Big Brother Biotechnology has both red and green on the side. Which one he reaches for will help us determine just how confident Uncle Sam is right now.

As for the rest of the Family, there are two sectors that remain in bullish phases-Semiconductors and Regional Banks.

Semiconductors touched the 50 DMA on Monday. Tuesday’s action looks less decisive up or down. If it breaks under Monday’s low, safe to say-red. Definitely red. A move over Friday’s high and in spite of the extreme sensation the red chili caused, longs will realize there’s been no permanent damage done.

Regional Banks (KRE) are trading well above the 50 DMA.  Holding pepper spray in his hand, the Prodigal Son protects himself from this selloff for now.

I continue to find Grandma Retail (XRT) most compelling. So much so, “I’ll have what she’s having.” If Granny, with her inside trading day and support just below current levels at the 200 DMA, rallies over Monday’s high-go with green. If XRT fails the 200 DMA and Monday’s low, assume she’s the elephant in the room. Elephants do not like capsaicin. It upsets their large and sensitive olfactory system.

Currently, with an anticipated interest rate rise of most likely .25%, the market is digesting the Fed’s hot sauce. Noteworthy though, is chili’s many medicinal uses. Uncle Sam knows that eating hot chili peppers over time decreases mortality by a whopping 14%. Pass the salsa!

S&P 500 (SPY) Held the support again at 212. Inside day so the range break either way of Monday’s range will be telling.

Russell 2000 (IWM) Unconfirmed warning phase. That means needs a second close under 121.25 to confirm or good news

Dow (DIA) Inside day here too

Nasdaq (QQQ) Holding the 50 DMA so now only index in a bullish phase. Clearly if that remains the case that’s a good thing too-another inside day

XLF (Financials) Still holding the 50 DMA-good place to keep eyes.

KRE (Regional Banks) Still can lead the way if it clears today’s highs

IYT (Transportation) 140 most likely a make or break point

IBB (Biotechnology) Inside day above the 200 DMA-that’s another factor to watch

XRT (Retail) Held support at 43.30. Had an inside day above the 200 DMA. This is where I will focus mainly tomorrow

IYR (Real Estate) Nope on that reversal

GLD (Gold Trust) Seems to me, once the market realizes that gold is the new safe haven-it will go up again.

SLV (Silver) Over 18.25 better

USO (US Oil Fund) Noise til it clears 11.10 on a weekly basis

TLT (iShares 20+ Year Treasuries) 128-130 is the target from the channel short on the monthly chart

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