The Russell 2000: Over the Rainbow, Scouting for Gold

April 18, 2016

Mish's Daily

By Mish Schneider

Back in March 2015 I wrote a Daily called, “Treehouse of Horror IV”.
The premise of the piece was two-fold. First, I likened the Dow then trading at 18,000, to Bart Simpson and his nightmare about a gremlin hanging on the side of his school bus. Here we are a year later staring at the Dow once again trading at 18k. Scary, huh?

Secondly, I replaced the gremlin with Janet Yellen. With a Fed meeting coming up next week, could a rate hike be far behind this rally?

I know if I were her, I’d be thinking about the DJIA, price of gold, rebound in soft commodities and rising inflation. I’d be weighing that very carefully against Global Economic Growth concerns and the positive gains in the Modern Family. Can we withstand another 1/4% rate hike?

When I wrote that Daily, the Dow tickled 18k and then failed. As flash-in-the-pan as that level was, it had legs. The rest of the market kept up.

Now, completely different story. For instance, back in March 2015, USO, the oil ETF was nearly double the current level. Retail or XRT was trading more than double today’s levels.

Are the underperforming sectors relatively cheap or is the Dow in la-la land?

Inky the Octopus Spotted Somewhere Over the Rainbow.

Ok, so maybe I am cheating a little reusing Daily titles. However, both pertain to the Russell 2000 (IWM)’s recent activity. I always look here for my best clues. Maybe Janet does too. Maybe she doesn’t. Whatever, the chart is a doozy.

In the final moments of trading last week, the Russell 2000 (IWM) marginally cleared the 200 DMA and changed to an unconfirmed Accumulation phase. Today, that Accumulation Phase confirmed.

Moreover, IWM has not traded above the 200 DMA since August 2015.

Behold the weekly chart. The blue line: the 50 week moving average. The green line: the 200 WMA. The black trend line coming down from the June 2015 highs shows today’s breakout. The two pink lines indicate the October-December 2015 trading range.

IWM’s next area of resistance is 114.40 or the 50 WMA. After that, it has daily chart resistance at 115.35 or the last gasp high in December before the crash. Will it see 120? Possibly.

Seems safe to use 107 level now as max risk. If the Fed holds rates as is, 120 becomes possible. IF cash comes back into the market. Thus far, nearly 6% of fund managers see gremlins and remain in cash.

Yes my friends, the Fed. Or the MVP of the current rally.

March 2015 offered chartists delicious reversal patterns to indicate the impending trouble on the horizon. Transportation (IYT), had a classic reversal pattern near the end of March. That marked the beginning of the end for Trannies until this past February.

Presently, with the Rainbow behind it, IWM is looking for a pot of gold. Speaking of which, I still find myself happier in commodities for swing position trades. Fed, your move.

S&P 500 (SPY) 206.84 point to hold. December high 211.

Russell 2000 (IWM) Confirmed accumulation phase.

Dow (DIA) Traded at 182.68 back in March when the Dow hit 18k

Nasdaq (QQQ) Last week’s high111.33. Has a gap at 111.84 to fill. 110 huge area to hold

Volatility Index (VIX) I’ve been waiting for a flush. New lows, big volume-could be the one.

XLF (Financials) 22.50 support. 23.25 the 200 DMA

KRE (Regional Banks) 39.97 fills a gap if gets there. Support 39

SMH (Semiconductors) 55.65 area the point to continue from. 54.00 support

IYT (Transportation) 140 support 142 pivotal and over 144 move should continue higher

IBB (Biotechnology) Like a lot over 287.50

XRT (Retail) 45.00 pivotal. 45.70 the weekly MA to clear

IYR (Real Estate) 78.28 high to clear