Trade In It To Win It

March 27, 2016

Mish's Daily

By Mish Schneider

“Opposites may attract, but I wouldn't put my money on a relationship of financial opposites”. Suze Orman

I realize I might be taking this quote out of context, but really Suze? Ms. Orman is known for coming from a place of scarcity while we traders typically think in terms of abundance-or at least that’s what we strive for.

“Money on a relationship of financial opposites” in my universe, translates to investments in various asset classes or diversifying your portfolio.

Which is why I’m so grateful for my Modern Family , especially when members of it simplify the analysis down to two parameters-The leader, will it hold or fail its current phase? The laggard-will it play catch up or drag the rest of the troop down with it?

The overall market and certainly a couple of members of the family have technical points within a small trading range that, depending which way that range breaks, should reveal next direction.

For our purposes, let’s look at opposing forces, or the north and south pole if you will-Transportation and Biotechnology.

Then make a plan.

Transportation (IYT) behaved perfectly last Thursday. “Big eyes here to see if can hold the 200 DMA at 140.70,” my comment after Wednesday’s selloff. Thursday’s low 140.67. I love when that happens.

More importantly, we now have a working number to buy against, or short against should it break. Secondly, as last week’s high price was 145.85, we have a ceiling or trading range top to work from. That means one could buy in advance if IYT holds the 200 DMA. Then, depending upon the timeframe of the trade, trim or raise the stop should that area fail to penetrate.

Biotechnology (IBB) must be equally regarded. Having held 250 last week, that level now acts as good interim support. If that breaks, then 240 becomes the do or die point. My supposition would be that the ultimate impact across the major indices and sectors should that occur, would be significant.

On the flipside, if IBB clears 264, the phase change to Recovery would work well for a decent rally not only in Biotech, but for many other areas of the market. It would definitely help IYT and the other members of the family.

SPY, DIA, and QQQs have inflection points worth noting. SPY held the 20 DMA and back over 204-205 should yield follow through. DIA, our leading index, corrected enough to see the 200 DMA as a reasonable risk if it opens well Monday. A move back over 175 would be a great start.

QQQs, must clear and hold over 108. Although not sitting as pretty as SPY and DIA, a move over 108 would at least send a confidence booster to those indices. Under 106, not so much.

As long as IWM holds 106 it seems Russell’s will more than likely play nice with the others. Through 110, we have clear skies to around 114.

It pays to wait for at least 30 minutes after the open to assess how these levels will hold or not. I also recommend you turn off “Fed speak” and not worry whether they want to raise or lower rates. That stymies trading and clogs up the airwaves.

Naturally, in a volatile world, anything can happen. I assume however, that if you’re still reading this it’s because you want to trade.

So to the Suzi Ormans of the world-yeah, there’s risk-but like “they” say- “You gotta be in it to win it.” And right now, fear remains a loser.

“If fear was plucky, and globes were square, And dirt was cleanly and tears were glee
Things would seem fair, -- Yet they'd all despair,
For if here was there, We wouldn't be we.” ― E.E. Cummings

S&P 500 (SPY) 201.74 support. 204 remains pivotal

Russell 2000 (IWM) 105 support and back at looking for 108.65 to clear if good, then 110

Dow (DIA) 175 pivotal with 173.70 support. Better at 171.25 the 200 DMA

Nasdaq (QQQ) 108 resistance and 106 support

XLF (Financials) 22.50 pivotal area

KRE (Regional Banks) 36.75 support. 38.50 all clear

SMH (Semiconductors) Over 55 clear and must hold around 52.00

IBB (Biotechnology) 265 clears the 50 DMA. Otherwise, 250 next support area then 240

XRT (Retail) 45.50 level resistance to get back over

IYR (Real Estate) Better if clears 75.78 the JCRH

ITB (US Home Construction) 25.80 support and back over 26.75 good

GLD (Gold Trust) Support down to 114.