The Market’s Rod of Correction

April 24, 2018

Mish's Daily

By Mish Schneider


blankI apologize in advance if this photo offends anyone.

The disproportion of the man versus the “big bamboo,” has a myriad of interpretations.

These interpretations include, fertility, the rising from a slavery past, a statement on male endowment, and a belief in the “rod of correction,” or the panacea for ailments of all kinds.

In Jamaica, these wood carvings sell quite well to tourists (we did not buy one), hence, supply and demand rules.

Let’s go with supply and demand and a different twist to the rod of correction.

In yesterday’s post, we examined Apple (AAPL) as one barometer for the market.

AAPL, should it continue to trade below 162.90 by Friday, will break the 50-week moving average. Not since 2015 has that stock traded below that MA.

Yet, that’s only one barometer and as mentioned Monday, “it does indeed influence the market, especially the tech sector. Nevertheless, it says more about the sustainability of one company’s dominance over the phone, tablet and computer space, than about the overall economy.”

With that, we also looked at the Transportation ETF (IYT) and the Russell 2000 (IWM). Both are in the Modern Family and both are reliable measures of the sentiment on the US economy.

Which brings us back to supply and demand. And the rod of correction.

The Russell 2000 has 2000 small cap stocks in its basket. Those companies are mainly, but not all, manufacturing companies.

Furthermore, they all are “Made in America.” The Russell 2000, thus far, is maintaining its bullish phase.

More on the supply side, does that make IWM its own version of the big bamboo?

Meanwhile, Transportation (IYT), is an ETF that baskets planes, trains and automoble stocks, and tells us more about the demand side.

IYT went into an unconfirmed warning phase. Although the market got an early boost from consumer confidence stats that beat the expectations, it seems the supply and positive earnings thus far, outweighs demand.

And that, like the tourists who buy the phallic statues to amuse themselves and their friends back home, could mean the strong economy is ephemeral.

The GDP on Friday will be telling.

If you read the pundits, they blame the interest rates at 3% for today’s decline. Perhaps.

It’s a bit of a self-fulfilling prophecy though, when rates go up making goods more expensive, while supply rises and demand falls.

The other important Modern Family sectors are playing their own part.

It’s a bit of a self-fulfilling prophecy though, when rates go up making the cost of goods purchased on credit more expensive. This could cause supply to rise and demand to fall.

Semiconductors (where AAPL lives), confirmed the distribution phase, but is holding the key 50-week moving average at this point.

Granny Retail (XRT) is holding up fairly well.

And Biotechnology (IBB) also in a distribution phase, should be watched to see if speculators return looking for cheap prices. IBB over 107 would be not only impressive, but would definitely lead us to a much more erect market.

S&P 500 (SPY) 260.50 is the 200 DMA.

Russell 2000 (IWM) 153.70 and above keeps it in a bullish phase-most important level to know

Dow (DIA) 236.54 is the 200 DMA

Nasdaq (QQQ) 154.54 is the 200 DMA. Remember, longer term charts are still intact for the bulls. Noise until it’s not.

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