The Russell 2000-Old Faithful Geyser or Old Geezer?

July 18, 2016

Mish's Daily

By Mish Schneider


Typically situated near volcanic areas, geysers are fragile phenomena. When active, they can intensely spray hot water and steam. However, if conditions change, they can just as easily go dormant.

The S&P 500 and the Dow have already made new highs. At the start of this week, both traded within a narrow range and inside the trading range of last Friday.

NASDAQ, still rather far from all-time highs, led the other indices today by making new 2016 highs and clearing the July 6-month calendar range.

The most predictable geyser, Old Faithful located in Yellowstone National Park, erupts reliably nearly every 65 minutes. Traders are carefully watching the Russell 2000 to see if this too can reliably erupt over its 5-day consolidation.

Although Old Faithful shoots hot water and steam regularly, the duration lasts for only about 1.5 to 5 minutes. Can the Russell 2000 emulate Old Faithful? And if so, will its eruption last longer?

Semiconductors, whom we can call the Blue Lagoon after the geyser located in Iceland, has runaway in its recent eruption. As the Geyser reputed to help many who swim in its hot water, with Semi’s gap higher to new all-time highs today, it is the market’s best shot to heal the other weaker areas.

The Retail sector XRT could impact whether the Russell 2000 explodes up or heads into dormancy. If XRT continues to rally, hurdles remain. With the 2016 high made on April 1st at 46.50 considerably far, what volcanic activity in retail must occur to get its water boiling?

Regional Banks KRE have cooled down just like the Crystal Geyser, a cold-water geyser which lacks geothermal activity to keep it hot. KRE must hang on to 40.00 and the weekly moving average.

Biotechnology can turn out like Steamboat Geyser, the world’s tallest currently active geyser if it can clear the July high. IBB has the power to fuel the Russell’s higher should buyers come in to prop it up. If not, it could also turn out like the Morning Geyser, dormant since 1994.

Transportation IYT closed slightly down. Like Mortar Geyser, which went dormant for a couple of years, it recently erupted again. Therefore, it must clear last Thursday’s high to be of any help.

The geyser effect is due to its proximity to magma. In the case of the Russell 2000, the magma from Semiconductors must geothermally heat its and its brethren’s waters.

Otherwise, if the July 6-month calendar range high becomes formidable resistance, we just might see our Old Faithful Geyser head back to the house to take his place as the Old Geezer.

S&P 500 (SPY) Inside day. 215.31 now support and Friday high point to clear

Russell 2000 (IWM) Needs to clear 120.42 for more upside. Narrow range and consolidation pattern. Under 118.83 expect to see 117.

Dow (DIA) Unless it trades down to 183.80 still has the runaway gap and an inside day

Nasdaq (QQQ) 111.44 closest support level

XLF (Financials) 23.60 substantial resistance and where it closed. If clears could see 23.80 or higher. 23.20 first line of support

KRE (Regional Banks) 39.85 the 200 DMA needs to hold.

SMH (Semiconductors) Runaway gap, a good one with room

IYT (Transportation) 143 pivotal. 146.07 the 2016 high

IBB (Biotechnology) Must clear 274.81

IYR (Real Estate) Came back after the gentle 3-day correction.

ITB (US Home Construction) Consolidating well

GLD (Gold Trust) Long term still really bullish unless fails 125.

SLV (Silver) 18.50 support and over 19.15 better

GDX (Gold Miners) Good consolidation near the highs.

USO (US Oil Fund) 10.64 the July low to hold

OIH (Oil Services) Still like the chart

TAN (Guggenheim Solar Energy) Back over 22 way better. 21.20 support

TLT (iShares 20+ Year Treasuries) Still has a small runaway gap in place. That is key-if holds and rallies more from here or fails 137.56

UUP (Dollar Bull) 25.05 the 200 DMA resistance. 24.70 support. Looks solid for now

FXI (China Large Cap Fund) 34.60 support 38 resistance

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