The Market Has Rallied; Enjoy a Steak-Free Shine

June 2, 2016

Mish's Daily

By Mish Schneider

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“When the windows of perception have been windexed all will appear as it truly is “” sparkly” Meow Wolf Santa Fe, NM

Granddad Russell 2000 is our man and we are lovin’ it! And yes, as if right on cue, Grandma Retail (XRT) renewed her interest.

Retail responded as one would expect in an intact Modern Family. Although in a bear phase compared to the four indices all in bullish phases, Retail played some catchup today after good news came out early on.

Consumer comfort in the U.S. rebounded to the highest level in 5 weeks. Maybe not that much to go on as yesterday we talked about tepid consumer confidence and GDP numbers. However, that and IWM looking so sexy, was enough to get Granny to kick her heels up. Will that bring more shoppers to the mall?

Some retail stocks have done well this week. Check out Lululemon (LULU) and Michael Kors (KORS) for example.

Of course for us, Granny is only one part of the Modern Family equation. Semiconductors and Regional Banks are already doing their part.

Now we must look not only at Retail, but also for Transportation and Biotechnology to do theirs.

Before we go there, I must reiterate thoughts on the Dow and what happens when it has hit its terror zone at 18,000.

Currently, the Dow is trading around 17,800. DIA the ETF is back above the 50 DMA and holding. It does seem like a reasonable assumption that the next time the Dow clears 18,000, the gremlin will disappear from sight! As we tell our kids, if the same monster keeps showing up, then try to make friends with it!

What do Biotechnology and Transportation sectors have to do to look windexed, hence sparkly?

With Big Bro Biotech IBB in a Recovery Phase, we did anticipate over 275 it could get to 290 or the recent resistance area from April 22^nd. With the 200 DMA overhead at 298.51, over 290 it seems a likely next target. And at this point, IBB must hold around 275.

Transportation (IYT) has particular intrigue for me. As I have written many times before, although the Dow Theory has lost some its sparkle over the centuries, the economy needs a strong transportation sector. Regardless of what happens now in the major indices and in IWM, should IYT fail under 135 take that as fair warning.

On the other hand, should IYT clear 140.60, we won’t necessarily expect a huge run, but it will at least reduce any worries about its lagging in price.

Conventional wisdom states that the market runs about 6 months ahead of the economic statistics. I’d like to believe that we will see a bevy of great stats in the coming weeks proving this rally for real.

Finally, we end this week with the unemployment numbers. The several day reprieve the market has had from wondering if the Fed will raise rates or not will reappear. And when it does, it will all boil down to perception. Will perception be windexed or will it leave streaks?

S&P 500 (SPY) Still, April high 210.92 to clear. Has to hold 208.50

Russell 2000 (IWM) 118.45 overhead resistance. 115.05 major support

Dow (DIA) 176.95 support, 178 then 180 places to clear

Nasdaq (QQQ) 110.60-111 remains resistance. Has to hold 108

XLF (Financials) 23.50 support. 24.00 next point to clear

KRE (Regional Banks) Closed above 41.91 and looking strong. 40.98 interim support to hold

SMH (Semiconductors) 57.46 a gap to fill with 56.25 support

IYT (Transportation) Has 2 hurdles. The 50 DMA at 140.60 and the weekly MA at 140.10.

IBB (Biotechnology) If holds 275 could see 290

XRT (Retail) 41.75 is the support to hold. Resistance up to 44.75

IYR (Real Estate) 77.50 support held

ITB (US Home Construction) If clears 28.00 should continue