May 16, 2018
By Mish Schneider
Although the Dow only traded as high as 24,828, today’s action suggests that the Dow could reach its terror level.
Of course, blue chip stocks are fun, but not the most exciting index to watch from above.
That distinction goes to our beloved Granddad Russell 2000 (IWM.)
Today (and recently), more than proves that making IWM the head of the economic family is based on merit and not just on me having some poetic fun.
His role in the U.S. economy is indisputable.
And, since May 16th will go down as the day IWM makes a new all-time high, we must look around the board to see what will keep IWM on its Geritol high.
Naturally, we want to see the Dow hit 25k.
And, we want NASDAQ 100 and the Semiconductors pull their weight.
IWM may be the king of small cap companies that makes goods in the U.S. Yet, we need to see those goods in high demand.
And who is the actual U.S. economic avenger to watch?
If you thought to yourself, “Oh no, there she goes again, writing to us about Transportation,” I say, guilty as charged!
At the risk of repetition, IYT is to IWM as demand is to supply.
IYT had a good day. But not an amazing one.
First off, we do like that IYT is holding above 190 and in a bullish phase.
And, we do like that IYT is nowhere near overbought.
Nevertheless, if an economy is really hot, then IYT has to do better than this.
After all, I throw around words like stagnation not to scare you all, rather to keep your minds on the macro picture.
What do you not want to see?
Supply outpace demand, especially in the face of higher interest rates and rising oil prices.
IYT could not close over the March 13th closing level, which would have made today the highest close in 2 months.
I do not see that necessarily as weakness. Yet. (A failure of 190 would do that).
For now, it’s a reason to temper euphoria.
Should IYT clear 195, and do it on a closing basis, then, we have reasons to be cheerful.
That would clear a lot of resistance going back to January, before the huge correction.
And that would send IWM up to a probable target of 168.
So, enjoy the view, but keep your seatbelts securely fastened.
S&P 500 (SPY) 267-268 is max risk here. 270 pivotal. 274 resistance to clear.
Russell 2000 (IWM) 160 the new pivotal number. 168 area target if 160 holds.
Dow (DIA) Who can forget Terror at 25,000 in the Dow? Not me-so that’s the resistance (250) with now 245 support to hold
Nasdaq (QQQ) 166.50 needs to hold with 169.50 pivotal
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