This Bull Market Plays By Different Rules, but It Will End As They Usually Do.

June 3, 2017

Mish's Daily

By Geoff Bysshe

blank***Today’s commentary is by Geoff Bysshe, President of MarketGauge, and ETF Analysis by Mish.

Friday’s jobs numbers were perfect for this bull market, but not because the media’s focus on the new highs in QQQ, SPY and DIA.

Consider the advice and quote of legendary investor John Templeton, Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”

As I look at the reaction to Friday’s jobs report and the charts of the Modern Family is see a healthy dose of both skepticism and optimism.

As for the report, the non-farm payroll came in considerably lower than expected. At an earlier time in the life of this bull market such a miss would have sent the stock market plunging on fears that the economy was stalling.

Interestingly, this mature bull plays by different rules.

A common interpretation of the payroll weakness was that since the economy is slow but firm, the disappointing number of new payrolls was a sign that employers are having trouble finding workers to hire.

If workers are hard to hire this must be a bullish economic sign as long as wages don’t inflate (which they didn’t).

The bonds, however, were skeptical as demonstrated by their strong advance which indicating they saw economic weakness where stocks saw strength.

This type of dichotomy has been widespread in the markets ever since the end of 2014.

Over the last several years various areas of the market have cycled through their own bull and bear markets, and as a result the general market has been able to advance without wide spread euphoria developing.

In other words, market rotation has been the key to the steady bull market advance.

On Thursday, I pointed out how the Modern Family was suggesting that some of the skeptical members may be ready to swing back toward optimism.

More specifically, XRT, IBB, IYT, and KRE have all broken major multi-month support within the last month, but each has refused to breakdown, and in the case of IYT rally sharply.

Furthermore, IWM has climbed back to the top of its tight 6 month trading range.

Friday’s jobs report was met with mixed reactions from the Modern Family members. SMH, IBB, IYT and IWM all sided with the bulls.

Not surprisingly, KRE was under pressure from the move in the bonds, and of course, XRT (Retail) would have preferred to have more people employed.

You can’t keep everyone happy all the time, but when it comes to a keeping a bull market up, that’s a good thing, because euphoria is a bull market’s kryptonite.

S&P 500 (SPY) The launch from 240 put 245-246.50 as a target before Bollinger band resistance sets in. Friday high 244.35. What would change the picture? A high volume sell off and break under 240.00

Russell 2000 (IWM) Gramps out in a heck of a performance last week, but failed to close above 140. With a monthly channel top at 142-143 level, the test to those highs seems more likely than not. So for now, on alert if this fails 137.50, otherwise, thinking one more run up.

Dow (DIA) New high close. Who can argue with that? 211 pivotal

Nasdaq (QQQ) Gapped higher again and closed on the highs. Tech and FANG sitting in a tree. And why not? Corporations and tax cuts have the cash to keep the party going until there’s a watershed reason it should not.

KRE (Regional Banks) Weak because the rates are low. 51.00 is a super important support level. Otherwise, 53.60 is the place to give this new life

SMH (Semiconductors) How shocking. The other wonder woman makes yet another new all-time high.

IYT (Transportation) Cleared 168 which makes that number pivotal for Monday. Then there’s still resistance all the way up to 172.89. A failure now of 163.50 would be troubling

IBB (Biotechnology) Unconfirmed return to bullish phase. 292 must hold and the elusive 300 must clear.

XRT (Retail) The 50-DMA at 42.07 if clears should be interesting. 40 massive support to hold

IYR (Real Estate) Held all the moving averages but still in massive consolidation between 77 and 81.

XLU (Utilities) 52.00 rock bottom support. Closed on new 2017 highs and could see move up to 55-56.00 although Friday looked like a good day to take some profits

GLD (Gold Trust) In a bullish stage. 121 pivotal. 124.50-125.50 next big resistance

SLV (Silver) Cleared 16.55 and went into an unconfirmed recovery phase. If holds 16.50, a move over 16.75-80 would clear 200 DMA and bode well for further even bigger gains

GDX (Gold Miners) Quiet tight range and still waiting for a break over the 200 DMA and 6-month calendar range of 23.50 to get long. A break below 21 could get ugly to downside

XME (S&P Metals and Mining) If holds 28 and clears 30 could get interesting

USO (US Oil Fund) Looks heavy unless it clears and closes over 10.40

XLE (Sel Energy Spdr Fd) The decline continues with 64.10 the next support leve

TAN (Solar Energy) Dancing on the 200 DMA. A good sign if holds

TLT (iShares 20+ Year Treasuries) Cleared 125.10 for an unconfirmed phase change to accumulation.

UUP (Dollar Bull) 25.00 was support so for now, see more downside unless it gets back over 25.10

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