The Market’s Star Wars

October 11, 2017

Mish's Daily

By Mish Schneider

blankUnusual to capture both Darth Vader and Yoda in the same screenshot, I acted fast when I saw them both flying close together at the Balloon Fiesta.

Of course, we root for Yoda-the representation of the “good guys.”

And naturally, we remain aware of the power of the dark side represented by Darth Vader’s evil empire.

In this sentiment, we examine the frothy market.

Narrowing it down to three areas of focus, I stick to watching

  1. The Russell 2000
  2. Commodities
  3. Interest Rates

Using Star Wars to humanize those 3 focuses, we have the Russell as Yoda, Commodities as a young Luke Skywalker and Interest Rates as Darth Vader.

If all are Masters yet one lives in the light and the other in the dark, who is most powerful?

While the Dow made yet another new all-time high today, unfazed by Fed speak (or anything for that matter), the Russell 2000 has 2 inside days.

That means that today’s trading range was within yesterday’s trading range, while yesterday’s trading range was within the day before.

That’s a substantial pause in what I consider the most reliable of the indices of the US economy.

In commodities and my continuing watchful eye on oil, metals and agriculturals, both ETFs I featured last weekend, DBC and DBA are holding.

As far as interest rates, the Fed intimated at a December rate increase restating all the words we’ve heard over and over:

Strong labor market, expect higher wages with an eventual increase in inflation.

That sounds more dovish than hawkish and that’s where Darth Vader comes in.

Currently, the 4 to 1 ratio of Bulls to Bears is close to the highest ratio in 30 years.

Vader, or the Emperor, will have you believe that in his hunt for knowledge, he is building a future. We know that his intention is to increase his power.

With bullish sentiment and complacency in the market at a high, it’s like Vader (or the Fed) thinking he’s the most powerful guy, therefore he and his followers underestimate vulnerability.

Substituting that for interest rates, it’s the same as investors thinking that the Fed’s intention on raising rates and watching for higher inflation is under control.

Or that nothing can falter an economy running hot.

As we approach the Final Stage of Disbelief, the market is having a Star War’s standoff.

With an impending (or at least likely) blow-off rally, we do hope the force is with you.

S&P 500 (SPY) Inside day here. Market looking for a reason to become even more exuberant. I’m so waiting for that

Russell 2000 (IWM) 2 inside days-watch the way today’s range breaks

Dow (DIA) New highs

Nasdaq (QQQ) Inside day near all-time highs. 146.50 support.

KRE (Regional Banks) 57.26 next place to clear

SMH (Semiconductors) Exuberance still runs amok

IYT (Transportation) As long as this holds October lows, it wants higher

IBB (Biotechnology) 340-343 resistance with now 337 pivotal support.

XRT (Retail) The weak tend to get hit first. Granny better hold 40.00

IYR (Real Estate) Likes a dovish Fed

XLU (Utilities) Unconfirmed bullish phase

GLD (Gold Trust) 123.16 the 50-DMA to clear

SLV (Silver) Want to see a second close over the 200 DMA

GDX (Gold Miners) 23.30 pivotal support

XME (S&P Metals and Mining) 31.60 key support

USO (US Oil Fund) Unconfirmed accumulation phase with 10.35-10.50 resistance to clear

OIH (Oil Service Holders) 25.40 pivotal

TAN (Solar Energy) 21.00 major support to hold. Resistance at 22.00 to clear

TLT (iShares 20+ Year Treasuries) 123.87 pivotal 122.60 support and 124.87 resistance

UUP (Dollar Bull) 24.30 now pivotal resistance and 24.00 pivotal support

FXI (China) 45.00 support point to hold

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