The Market's Manufactured Sugar Water Runs Dry

September 11, 2016

Mish's Daily

By Mish Schneider


mdaily20160812Hummingbirds wash down soft-bodied insects and spiders with sugar water. The sugar water we leave in the feeders on our portal has provided them with the extra nectar they need to power that bug eating machine.

As these beautiful birds prepare for the long journey south, they have devoured four canisters of sugar water over the course of three days.

The market bulls have been a bear eating machine. For eight years, bulls have devoured the Federal Reserve’s sugar water. The nectar of low interest rates has powered the bull’s long journey to new highs.

Ironic that the Federal Reserve has acted as a spider building a tangled web of low interest rates to trap the bulls. But as soon as the Fed leaves the web both they and the bulls become the prey.

Also desperate for nectar, the Bears waited in the wings (pun intended). At just the right moment-when the spider left the web—like hummers they struck.

Last week ended beautifully for the bears and bloody for the bulls. The cycle of nature. The cycle of markets.

Speaking of the agony and ecstasy of nature, the Modern Family has not been in alignment since 2015. Yes, Sister Semiconductors enjoyed a wonderful summer while Big Brother Biotechnology spent most of his under a rock.

And yes, Granddad Russell 2000 enjoyed his swan song, while Grandma Retail barely made her debut.

Meanwhile sibling The Prodigal Son Regional Banks gets a Scarlet “A” for “Almost” as in he almost challenged last December’s trading range. After last week, it looks like that rally was the quintessential one to major resistance. December 2015 was the beginning of the end.

Trannies, Transportation, on the other hand, had a February to April romance. Once that ended, he fell into a rebound relationship yet not enough to make him chirp.

What does that all mean? A Family not intact is a Family’s that gets smacked.

Since the December interest rate rise fallout, the Fed’s pattern has been to talk of raising again. Once they see the market decline, they then repeat never mind. As the Family represents the U.S. Economy, no doubt the Fed watches these sectors carefully.

The lesson from nature applies. I’m sure hummingbirds had no problem eating insects and flying south long before we humans supplied them with feeders. Our feeders may have increased the number of survivors, but nature always takes its course.

Same is true with the market. The Fed has artificially provided the bulls feeders filled with sugar. That sugar made the bulls fat. But without the Modern Family to support this last rally, that manufactured nectar may have finally run out.

The nature of market phases always eventually takes its course.

S&P 500 (SPY) What’s that cliché about taking the stairs up and the elevator down? 212 support next.

Russell 2000 (IWM) C’mon Gramps-only one above the 50 DMA at 120.95. Watch here

Dow (DIA) Well, it was sort of inevitable we would retest the Terror at 18,000 in the Dow. We have. Let’s see what happens next

Nasdaq (QQQ) Early last week I warned that the last gasp tech rally was suspicious. I wish I were more emphatic about that. 114 support.

XLF (Financials) 23.75 the 50 DMA

KRE (Regional Banks) 42.00 support. Through 43.10 better

SMH (Semiconductors) Those 2 Distribution days in volume last week were telling. 63.05 the 50 DMA

IYT (Transportation) Like Gramps, last chance coming up if holds the 50 DMA at 140.80.

IBB (Biotechnology) 275 the 100 DMA with 283 the overhead resistance

XRT (Retail) I did write that it was as simple as watching here. She didn’t budge up, but she did at least hold support at 43.30

IYR (Real Estate) Awful looking move down. Where’s the growing economy?

GLD (Gold Trust) Opened up under the 50 DMA but held the 10 DMA. Question is, will mkt run here or be too afraid of higher rates?

SLV (Silver) 17.47 major underlying support

USO (US Oil Fund) Noise til it clears 11.20

XLE (Energy) New 2016 high Thursday. Broke its poor little neck Friday. If can back over 70.50 better

TAN (Guggenheim Solar Energy) One day, but not yet

TLT (iShares 20+ Year Treasuries) That monthly channel top I showed you all August 8th now has momo.

UUP (Dollar Bull) I’m guessing here-but expect this to turn back down.

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