Retail and Interest Rates: As Above So Below

August 15, 2016

Mish's Daily

By Mish Schneider


Photo JR Lancaster

Naturalists will tell you that everything in life is reflected in nature. Or is that everything in nature is reflected in life? Like reflection itself, one is the mirror image of the other.

Lao Tzu once said, “Nature does not hurry, yet everything is accomplished.” Reflecting on the markets and its gradual rise to new highs, has everything the market set out to do been accomplished?

Naturally it depends where one looks and reflects.

In the photo above, one cannot readily discern north from south. The mountains are reflected in both the sky above and the lake below. Similarly, a rising interest rate environment is reflected in an improving economy and vice versa.

In the Modern Family sectors, we look to see if the recent rally has accomplished a goal of convincing the Bears that the economy is improving.

The Federal Reserve has surely maintained an unhurried stance of raising interest rates. Yet, with the market’s recent move up and with the technical indicators pointing to a possible top in Long Bonds, is Fed policy now seeing its own reflection?

The rise in rates the monthly chart of TLT (20+ Year Treasury Bonds) suggests has yet to confirm or deny.

The TLTs daily chart shows it sitting close to a phase change to warning after one failed attempt in April and then another failed attempt in May. Since then, the 50 daily moving average has risen in slope and now acts as a line in the sand.

If the third time is a charm, then along with the channel top I showed in the monthly chart on August 8th, we see the top half of the current picture similar to the photo of the mountains. Rising interest rates looming above the horizon.

There are 3 sectors in the Modern Family our TLTs reflect most. Retail (XRT), Transportation (IYT), and Regional Banks (KRE).

Although none of those 3 sectors have cleared the 2016 highs yet, currently the sector with the best shot is Retail. 46.50, the 2016 high posted on March 30th. Immediately thereafter and for the next several weeks, XRTs price fell.

The long bond chart of TLT took Retail’s late March rally to heart. It coordinated perfectly with TLTs first foray into a warning phase in early April.

Then in June, XRTs next decline in price was equally reflected by TLTs next rally back to a bullish phase.

Two conclusions can be drawn. Retail does not make new highs and TLTs reflection is that it continues to stand tall with rates near zero.

The second conclusion is that Retail does make new 2016 highs and TLTs reflect that by diving into a third and more sustainable warning phase.

“Life can only be understood backwards; but it must be lived forwards.” Soren Kierkegaard

S&P 500 (SPY) 217.25 support. Got close to my 220 target today

Russell 2000 (IWM) End of July 2015 high 123.67 First week of August 2015 high 123.53. Tested above closed below both levels-these are important since it preceded a huge crash

Dow (DIA) Monthly chart overbought so looking for around 188 max on this move. 185 support

Nasdaq (QQQ) 116.50 support to defend.

XLF (Financials) January high of 24.27. 23.70 area is now pivotal support

KRE (Regional Banks) 42.00 big resistance

SMH (Semiconductors) YET another new-high close

IYT (Transportation) Back over 142-way better

IBB (Biotechnology) Over 295 should continue north if holds

XRT (Retail) 46.50 big resistance

IYR (Real Estate) The reversal pattern from recent highs working with 82.25 support

GLD (Gold Trust) The weekly accumulation phase dilemma-looks great but slope on 200 DMA declining

SLV (Silver) The weekly accumulation phase dilemma-as in hasn’t happened yet

USO (US Oil Fund) 10.85-11.00 a wall of resistance

TLT (iShares 20+ Year Treasuries) 138.15 the 50 DMA which it’s been above since June 1.

UUP (Dollar Bull) If the dollar declines, then I am even more friendly to commodities overall

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