The Market Contracts and Flexes its Muscles

January 17, 2017

Mish's Daily

By Mish Schneider


Section of a painting by James Palmer Mulligan

Imagine my surprise and sparked imagination when the doctor told me that we have sphincter muscles around our eyes and mouth. And here I spent a lifetime thinking we only had one! (We have over 60!)

The market has its share of voluntary and involuntary sphincter muscles as well. If meant to tighten or close holes, today the market’s sphincter attempted to SEAL the rally.

I often write about the relationships among the Modern Family’s one index and five economic sectors.

If discordant, noteworthy and cause for trade tightening. If harmonious, more reason for increasing exposure.

In quite a while now, the family has indeed behaved discordantly. Today however, the family drew closer together. And not in a good way.

The market completed the first 10 trading days of 2017.

With all the open-mouthed noise from analysts, traders and elected officials, the calendar ranges should help ascertain the market’s next direction.

Will the Family hold, fail or break out of the 6-month Calendar Ranges?

First, we must also examine the NASDAQ 100 and particularly the FANG stocks. Today, the QQQs, after making new all-time highs last Friday, closed red and with a possible reversal pattern.

Interestingly, with Friday’s high the top of the calendar range, the low established on January 3rd at 118.89 sits far enough away that a robust sell-off could wind up as a low risk buy opportunity.

Netflix reports tomorrow after the close. That too will influence NASDAQ’s next direction.

The Russelll 2000 has its 10-day range already established making it a bit easier to read. With the low to high 133.59-137.96, if IWM fails from here, regardless of what NASDAQ does, I would heed the warning.

Coupled with IWM, we must look at Transportation (IYT). Ironically, the high for 2017 posted Friday at 165.91. 161.58, the January 3rd low, sits a whole lot closer after today’s action.

As for the rest of the Family, Retail and Biotechnology, both weak, trade right in the middle of their January ranges.

Semiconductors, much stronger, nevertheless trades in the middle of its range as well.

Today, Regional Banks made a new 2017 low, which now posts the bottom of the 2017 range. You can use that as a support point to rally from or another reason to exercise caution should it trade/close even lower tomorrow.

In addition to all of the above, we must keep eyes on the Volatility Index. At some point, although nobody knows when, the market’s ultimate sphincter, the VIX, should involuntarily close up that bullish hole.

S&P 500 (SPY) 226.00 pivotal support, then 224.50 and above 228.34 the high.

Russell 2000 (IWM) 135.50-136 pivotal Resistance. 133.59 support. Over 138 better

Dow (DIA) 200 to clear 197.50 should hold now if good.

Nasdaq (QQQ) 121.60 support

KRE (Regional Banks) 53.72 now the low to defend or not.

SMH (Semiconductors) 72.35 pivotal area. 74.00 resistance to clear.

IYT (Transportation) 161.68-84 the critical area to hold

IBB (Biotechnology) Unconfirmed bearish phase

XRT (Retail) Tried hard today, but not convinced worst is over yet

IYR (Real Estate) If this breaks a trendline around 75.75 that would not be good

GLD (Gold Trust) 114.50-115 support to hold

SLV (Silver) Recovery Phase. 16.00 support 16.50 resistance

GDX (Gold Miners) 23.00 pivotal support.

USO (US Oil Fund) 12.00 is big resistance and 10.80 big support

TAN (Solar Energy) Confirmed phase change to Recovery.

TLT (iShares 20+ Year Treasuries) One would think this rally would spill over to fear. Nope

UUP (Dollar Bull) Got Trumped today. 25.80 big support level

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