Sheep Find Sheepdogs Annoying When Things Are Fine

February 25, 2015

Mish's Daily

By Mish Schneider

The Art of Manliness –Are You a Sheep or Sheepdog? Part 1 by Brett and Kate McKay

Tuesday, I shared a way to look at reversal trades using commodities and particularly, DBC, the Commodity Index ETF, as an example.

In fact, pretty much the entire commentary focused on commodities as I am fascinated by the constant opposing viewpoints and the basing action on the charts. Since I was a commodities trader for 12 years on the New York Commodity Exchange in the World Trade Center, with most of that time spent as an independent trader on the Mercantile Exchange (Crude Oil, Heating Oil and Natural Gas), I have never lost my penchant for futures nor for the excitement of trading them.

Reviewing the Commodity Index (DBC), I noted that since July 2014, it had traded under the 50 and 200 Daily Moving Averages in a sharply accelerating Bearish Phase.

A simple way to determine basing action is by watching the declining 50 DMA. If the price clears over and the slope of the 50 DMA flattens out, we can safely assume that selling has dried up. I further wrote that, “A move above the 50 DMA along with greater than average volume” and perhaps we will have a whole new pasture to play in.

The price on DBC did indeed clear the 50 DMA, but the slope continues to decline and the volume hardly merits spectacular. Therefore, we assume no more selling, some buying, but not enough slope change or volume coming in to holler “BOTTOM!” However, note that we are now in an unconfirmed phase change to Recovery.

Meanwhile, back at Sheep’s Meadow, the grazing, scattering, grazing cycle continues. Sheep are a bit nervous and with good reason; the wolves are lurking vis-à-vis the Volatility Index (VXX) fear factor, which made a new 60+ Day low, then turned around to close in the top 25% of its intraday range. That means we watch this carefully on Thursday to see if it continues higher. Investors, now is the time to unleash those sheepdogs!

S&P 500 (SPY) Uneventful really as a doji (open and closing price virtually the same) day near the highs.

Russell 2000 (IWM) Consolidating with an inside day

Dow (DIA) New high close and consolidating-not overbought

Nasdaq (QQQ) 108 fairly pivotal spot to watch

XLF (Financials) 24.90 the January Calendar Range high to clear, taking its sweet time too

KRE (Regional Banks) Inside day with 41.06 the January Calendar Range High to clear

SMH (Semiconductors) Inside day

IYT (Transportation) 165.17 January high-cleared early on then failed-troublesome area

IBB (Biotechnology) Good to see this got a new steroid injection

XRT (Retail) Consolidating and promising for more upside

IYR (Real Estate) Warning Phase and inside day under that 50 DMA

ITB (US Home Construction) No more breakaway gap