Retail's Triple Bottom or Biotech's Daunting Bear Flag

January 4, 2016

Mish's Daily

By Mish Schneider

Over the course of the weekend, we watched the documentary called Project NIM. Raised in a human household, NIM, a chimpanzee was part of an experiment to see if the chimp could communicate with humans. The story took a sad turn as with all of the folk’s involved and their good but naïve intentions, poor NIM wound up caged, dying at the age of 26 from a heart attack.

We partly watched the story to get ready for the upcoming switch to Year of the Monkey from the Year of the Sheep. I will write a lot more about that this month. Naturally, the market beginning the year caged just the way NIM ended his life, has its own uncanny sense of irony.

NIM, is also the name of mathematical game of strategy. Two players take turns removing objects from distinct heaps. The goal is to be the player to remove the last object. Even more interesting, is the game originated in China.

If we add up good intentions, monkeys in cages, objects removed from a heap, origins in China and the dramatic start of 2016 in the markets, strap on your seatbelts my friends, the fun is just beginning.

To my fellow Modern Family watchers, before I left on vacation, the yellow flashing signs of this potential sell off were obvious.

The Russell 2000s spent almost all of December in a bearish phase. The next best underlying support is at the 200 Daily Moving Average at 105. In the meantime, Mondays huge volume implies that the action was more of a blow off and back over 110.28, IWM will see a return to 113.

However, I would not discount that a rally won’t be met with tremendous selling as the other indices are now damaged. I would keep very close eyes on NASDAQ (QQQs) to see if the volume, new 60+ day low and closed just over the 200 DMA isn’t some sort of temporary bottom if holds.

Then there’s Granny Retail (XRT) over 42 offering a hopeful triple bottom possibility.

Before we get too excited or naïve, just like the folks did in Project NIM, we must not lose sight of the weakness in Biotechnology (IBB). That Mother of all Bear Flags is back in play with 320 the last gasp of support to hold.

In the game NIM, one wins by being the player to remove the last object. Safe to say nobody playing the market game wants to be the last trader to remove disastrous longs.

Here again are my top ten megatrends to watch in 2016. Many began the year trading on their own fumes looking very promising.

S&P 500 (SPY) New 60+ day low, big volume, close on the highs-definitely will keep us all coming back on Tuesday.

Russell 2000 (IWM) 108. 110.28 and 113 the key points that are closest.

Dow (DIA) Similarly to SPY, all the elements of a reversal possible. 174 big resistance

Nasdaq (QQQ) Like this potential reversal best because it is NASDAQ and over the 200 DMA with the best phase

XLF (Financials) This too has a potential reversal. For the rest of the sector ETFs, assume that the confirmation of reversals if noted, are holding Monday’s low and closing over the Monday’s highs

KRE (Regional Banks) No reversal here which means the prodigal son not participating. 41.00 pivotal

SMH (Semiconductors) Would consider if holds 52.00 for a move to 54 next

IYT (Transportation) Another weak member of the Family that has to prove it can hold

IBB (Biotechnology) 330 big pivotal area. 320 support

XRT (Retail) The ultimate point to hold is 42.00

IYR (Real Estate) It held the 100 DMA so still a contender if this is forming a right shoulder to an inverted head and shoulder.

GLD (Gold Trust) 102.25 pivotal. Over 104 better

SLV (Silver) Not a pretty chart

GDX (Gold Miners) Over 15.00 worth a follow long

USO (US Oil Fund) I predict we won’t see over 40.00 a barrel anytime soon

OIH (Oil Services) Those 2-day reversal patterns are awesome when they work. Now, must hold 25.40 to remain a bottom

XOP (Oil and Gas Exploration)