April 19, 2016
Mish's Daily
By Mish Schneider
“Hope is a prodigal young heir, and experience is his banker”-Charles Caleb Cotton
Day 2 of the Dow over 18k. Other than the terror instilled into those forced to liquidate longs in IBM and Netflix after dismal earnings reports, the rest of the market continues to look gremlin free.
With the Russell 2000 showing up to the equities party late last week, his wayward son has just returned seeking forgiveness.
In the contemporary dictionary, the “prodigal son” is a character who recklessly wastes his inheritance but returns home repentant. As such, he is joyfully received by his family. In our case, it’s the Modern Family.
Regional Banks (KRE) The Prodigal Son
For quite some time, while the rest of the family worked hard to stay afloat, the Regional Banks ETF floundered. Upon hearing that his sister Semiconductors was feasting over the 200 DMA and most recently, back in a confirmed bullish phase, KRE hoped the family would take him back.
Tuesday, Regional Banks led the rally. Looking at the monthly chart, we will watch to see if KRE has the moxie to clear a 2-year moving average.
The above chart is a monthly chart going back to 2007 and ending with the current price action. The dark blue line is the 23-month moving average. The cyan line the 80-month MA.
KRE made its move in 2013. It peaked in November 2015. At the start of this year, it broke down under the 23-month MA. Now, KRE sits at an important inflection point.
Will KRE close April back above 40.31? If so, what might that mean for the market?
Today, IWM came close to test the resistance at 114.40 or the 50 week moving average. 115.35 is the December high just before the crash. After that, we could see 120. Yet, so much of what happens now to IWM depends upon his prodigal son.
In the parable, the father, upon seeing the return of his son, orders the fatted calf to be slaughtered so they may feast. Clearly, IWM’s fate is tied to that of KREs. The financial sector, now that most banking stocks have reported, survived better than anyone had hoped.
Biotechnology (IBB) Big Bro or Elder Son
In the parable, the Prodigal Son’s elder brother (or in our case Big Bro Biotech) grew angry when he saw IWM and KRE feasting. Unlike KRE, Biotechnology (IBB) never left the family. He continued to work the fields. Since IBB never quite got over KRE’s abandonment, to this day, he underperforms the rest of the clan.
Nevertheless, with KRE’s return and Granddad IWM’s recent revival, Big Bro is encouraged to feel the love. Whether he does or not, remains a mystery.
S&P 500 (SPY) 206.84 point to hold. December high 211.
Russell 2000 (IWM) A doji day which is not surprising considering the near overbought condition and the lack of participation by NASDAQ
Dow (DIA) Traded at 182.68 back in March when the Dow hit 18k. Golden Cross too far to buy against now
Nasdaq (QQQ) Has a gap at 111.84 to fill. 110 huge area to hold on a closing basis.
Volatility Index (VIX) Got the huge volume, a new all-time low, but not the strong finish. Could do it tomorrow and develop a 2-day pattern
XLF (Financials) 23.25 the 200 DMA and now an unconfirmed accumulation phase
KRE (Regional Banks) Filled the gap to 39.97 and looking very prodigal
SMH (Semiconductors) Not making too much of the red close today since it’s in consolidation. However, Intel did not report well.
IYT (Transportation) 144 now closest support
IBB (Biotechnology) Illumina is a big reason this got no love today
XRT (Retail) 45.00 pivotal. 45.70 the weekly MA to clear
IYR (Real Estate) Rocking it
ITB (US Home Construction) Consolidating after moving out of the consolidation
GLD (Gold Trust) Back to an unconfirmed bullish phase. Still looking for a close over 120 to stick
SLV (Silver) See this going to 18.00 with 15.50 now point to hold
GDX (Gold Miners) 25-26 should be next target if holds 21.00
USO (US Oil Fund) 10.80 next point to clear
XLE (Energy) Confirmed Accumulation Phase
XOP (Oil and Gas Exploration) Unconfirmed Accumulation Phase
UNG (US NatGas Fund) Looks a lot better
TAN (Guggenheim Solar Energy) I find myself waiting for volume before acting even with this over the 50 DMA
TLT (iShares 20+ Year Treasuries) Holding the 50 DMA thus far
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