May 9, 2016
Mish's Daily
By Mish Schneider
Will The Second Step Take Place Tomorrow?
Today's commentary was written by Geoff Bysshe, co-founder of MarketGauge.
Friday was an unconvincing bounce off the 50 DMA’s for 3 of the 4 major stock indexes (SPY, DIA, IWM), and the market was just as unconvincingly bullish today.
Nonetheless, 3 of 4 stock indexes (SPY, QQQ, IWM) closed over Friday’s high which is a first step in a market holding key support and reversing. However, when the prior day’s close is the high of the day, and the subsequent rally is as small as today’s, this pattern it’s not very convincing.
Additionally, if we look at how the individual Modern Family members participated, we find that the “rallies” came from the weaker members.
Nobody was bad, but the only two that had any semblance of a trend up day were the two that have been the weakest as of late, XRT and IBB.
So “reversal” is still an optimistic description for the market right now, but it is still siting nicely in a great location for the bulls to place low risk trades betting on the strength and reputation of the 50 DMA.
The second step in confirming that the market’s inclination is to bounce rather than drop from here is for it to trade over Monday’s highs (in the indexes and ETF’s that closed over Friday’s highs today).
With that in mind keep your eyes on today’s highs in the SPY, QQQ and IWM. It’s not a powerful looking inflection point, but it’s the important next step to any form of a rally starting from here.
S&P 500 (SPY) It was able to trade above the important 206 level but then just consolidated in its opening range. The next big number to clear on the upside is 207.
Russell 2000 (IWM) Followed through over Friday’s high but couldn’t break above the important 112 level. 110.50 should be good support.
Dow (DIA) Quiet consolidation day. Needs to hold Friday’s low.
Nasdaq (QQQ) Cleared and closed over the 105.70 level. Next big number to clear is 106.90. 105.50 should be good support.
XLF (Financials) Consolidated with HOD at expected resistance of 23.20. It needs to get back over 23.30 to demonstrate any hope of strength. Next big support is 22.75.
KRE (Regional Banks) LOD at 38.50 confirms that should be good support. Interesting over 39.40.
SMH (Semiconductors) Traded over 52 but couldn’t close there. 52 is pivotal and the 200 DMA. There isn’t any good support until 50.25! Needs to clear 53 before considering a long.
IYT (Transportation) Traded over the key resistance at 139, but consolidated with the market. This is one to watch for trades in either direction it breaks.
XRT (Retail) One of the bigger movers to the upside today, but it all came in the first half hour. Let’s see if it can hold up tomorrow. Today’s low area, 43, should be support now.
IYR (Real Estate) Continued its orderly breakout.
GLD (Gold Trust) Gapped down under the 10 DMA to the top of a support area, 120.50, and consolidated. Today’s high is now a pivotal level.
SLV (Silver) Gapped down under the 10 DMA and the initial support of 16.40. Next big support should be a 16, and 16.50 could be big resistance.
GDX (Gold Miners) Gapped down with GLD but it did not break last week’s low as GLD did. 23.30 is the next support.
USO (US Oil Fund) Moved lower, but held 10.60 support. 10 should be the next good support. Needs to get back over 11.05, to consider longs.
XOP (Oil and Gas Exploration) Moved under lasted week’s low and the 200 DMA, spent the day consolidating.
TAN (Guggenheim Solar Energy) Down again and through the 21.70 support. 21.50 was the low of the day and a significant chart point.
TLT (iShares 20+ Year Treasuries) Almost a double inside day. Close enough. With 2 days of tight consolidation after a big breakout over the 50 DMA, watch for a big move either way this week.
UUP (Dollar Bull) 4th consecutive up day after last week’s reversal. Stopped at big resistance level of 24.40. There is more resistance over 24.40, but if it can break 24.40 it may have put in a significant low last Wednesday.
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