The Best Little Small Cap: Out of Many One

June 16, 2016

Mish's Daily

By Mish Schneider

mdaily20160617

“Eye” Pluribus Unum. E pluribus unum is Latin meaning “Out of Many One” that used to be printed on U.S. coins. The Eye of Providence (Pyramid) or the “all-seeing eye of God” appears on the U.S. one-dollar bill.

I photographed the above diarama to make a few points. First, to represent how one needs two eyes to apprise the constant flow of information. Secondly, to represent that one needs two eyes to objectively ascertain the tug of war between the bulls and the bears. Finally, to represent that the Russell 2000 (out of many) in a Bullish Phase is the One. Which (as I wrote Wednesday night) is a plus.

I haven’t changed my mind about the Giant Behemoth or the negative interest rates and how that could ultimately overradiate inflation hence kill the US market rally. Nor have I changed my mind about the eventual extinction of the Rallysaurus.

However, timing is everything. As much fun as I have projecting out, like my call for the bottom in gold and many commodities last November, projections don’t pay the bills. Good timing though, does. Which brings me back to Granddad Russell 2000.

Thursday, IWM touched and held the 50 Daily Moving Average. Why is that so important?

The reason the Russell 2000 is the Patriach of the Modern Family rests with the fact that most of the 2000 companies in the IWM basket best represent the US Economy.

If the Russell 2000 wants to hold up the market-so be it! I never argue with seniority. Gramps keeps me from getting too bearish, but does he also make me bullish? Better yet, is Kong (bear) falling off the Empire State Building protecting Beauty (Bull) or did he merely stumble?

With today’s comeback, the Dow sits only 260 points away from 18,000 or the cruising altitude that causes hallucinations of gremlins. Other sectors such as Real Estate (IYR) are super close to the 2016 highs. Retail or our Granny, may be bearish in phase, but the old girl wonders what her hubby Russell is up to.

So what’s next?

Keep an “eye pluribus unum” on the siblings. The Transportation sector might have put in a new 60+ day low and reversed. A confirmation is necessary. Looking at Semiconductors, she is sure doing her darndest to keep the role as cheerleader.

So between Gramps and Semi’s, Transportation either complies or stubbornly sits this rally out. Either way, I always find clarity in how IYT responds.

Speaking of Terror at 18k and Gremlins, a Twilight Zone episode “A Kind of a Stopwatch” was about a man who recieves a stopwatch that can stop time. As he takes the watch he is told, “Remember, e pluribus unum.” Out of many one.

As for commodities, the Fed for now breathes easier after gold makes a new 2016 high then sells off. Grains consolidate while oil returns to an unconfirmed bearish phase.

Negative or near zero interest rates along with a declining US dollar stave off inflation for another day. Until it doesn’t.

S&P 500 (SPY) Back into an unconfirmed Bullish phase joining IWM. 207.75 is the 50 DMA and pivotal. Over 211, way better

Russell 2000 (IWM) 112.50 level important. 115 pivotal and over 116.50 impressive

Dow (DIA) 177.80 the 50 DMA to clear or fail from.

Nasdaq (QQQ) If good, has to close back over 108.40. Otherwise, can see 106.25 next

XLF (Financials) Held 22.40 and might have reversed if confirms.

KRE (Regional Banks) Held support at 38.20 but if good must clear 40.00

SMH (Semiconductors) 54.50 support or a move over 57.20 a relief

IYT (Transportation) May be a reversal-has to confirm by closing out the week over 136.05

IBB (Biotechnology) I didn’t even bother to write about him above. Higher lows since February-best I can say.

XRT (Retail) Granny has 40 to defend and over 42-good for her!

IYR (Real Estate) 78.00 big support and over 80 new life