The Muscle Behind the Stock Market

January 8, 2020

Mish's Daily

By Mish Schneider

blankBefore I get into commentary on the overnight swing, how I was right when I said that President Trump skirts every crisis and speculate on what might happen next, I thought I’d share this:

According to Forbes, “the top 5 billionaire winners amassed nearly $112 billion in additional net worth in 2018-2019, more than 2 times an increase from 2017-2018.

Over the past 10 years, the 10 richest people in the world increased their net worth by more than half a trillion dollars.”

So, when you hear that the Fed has made the rich richer, that is certainly part of the equation.

The other part is that this administration is also helping their richest donors, corporate lobbyists and inner circle to get very very rich.

But, I do not mean this to sound cyncial.

Rather, it is the exact reason that through the nearly 400 point downturn overnight that turned into a 260 point gain during the day, we have stuck to our plan of holding longs in equities, but also holding longs in some commodities.

Interestingly, we have taken profits already in the commodities for the most part. The newer equities positions are just starting to build momentum.

Perhaps the Iranian situation has abated. And perhaps not.

Let me remind you that the macro view of a possible stagflationary environment as we get into 2020 is still very much on the table.

In the meantime, following the billionaires’ muscle and their commitment to keeping the market strong makes sense.

Until that changes, do not overthink.

And what could make that change?

I also read as per FirstSquawk that “China is picking up soybean cargoes in Brazil, dashing hopes for big American sales immediately after a deal is signed with the US next week.”

The trend of China buying raw materials from other countries has taken hold.

China’s alliance with Russia and India continues.

And the dollar at risk as the world’s reserve currency remains.

These reasons, along with the low interest rates worldwide are why we are buying commodities. The Iranian conflict goosed our positions so fast, we were compelled to take profits on the strong move up.

Even if Iran stays quiet, should the trade deal disappoint, or the Fed lower rates again, or the dollar become at risk, owning commodities in your portfolio makes sense.

And add to all of that, the seasonal calendar range, which will show itself in a week.

As far as equities, I love to track the Transportation Sector IYT and small caps, the Russell 2000 IWM.

Last night I wrote, if IYT continues to close above 194.60 and can clear and close above 195.82 today, I would not be surprised to see IWM play catch up.

Although scary overnight, IYT handily held 195.82 today closing at 196.90, while IWM did indeed play some catch up closing about .41% higher.

To sum up, the billionaires are on steroids. Their muscle, along with corporate buybacks, has supported the bullish trend. And the Fed has provided the punch.

Is there a bubble emerging?

Quite possibly. Therefore, do not try to pick a top. Do consider risk/reward when buying stocks.

Do look at commodities and manage your existing positions with aplomb.

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S&P 500 (SPY) 322.80 pivotal. 325.78 the ATH. 320 key.

Russell 2000 (IWM) Must clear 167.12 with 165.70 pivotal and 163.70 support

Dow (DIA) All-time high 288.63 with 286.21 pivotal

Nasdaq (QQQ) ATH at 218.14. 214.27 pivotal support

KRE (Regional Banks) 56.70 the 50-DMA support 58.00 resistance

SMH (Semiconductors) ATH at 144.94 with 142.43 pivotal. Below 140, could see move to 135.

IYT (Transportation) 195 pivotal area. 200 key resistance. 192.74 support

IBB (Biotechnology) 121.50 resistance and 115.50 support

XRT (Retail) 45.41 pivotal. 46-47 resistance. 44.70 the 50-DMA

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