Trading the Market Without an Authorized Guide

October 24, 2016

Mish's Daily

By Mish Schneider

Baffling, as beyond this sign is a shear 600 foot drop into the canyon below. Doesn’t that make you wonder what sort of authorized guide they recommend visitors follow?

Not so different than the market action. Speculators feel prohibited from entering both the long and the short side. Recent volume patterns, or how committed speculators are to investing, indicate a lack of confidence.

Even with an “authorized guide” in the form of NASDAQ and FANG stocks, stock market visitors have mainly stayed out of the park.

The strong dollar has had its impact. Likewise, so has the talk of the Fed raising interest rates.

Equities on the highs-Amazon, Google, Facebook and Netflix look fat and happy. With earnings coming up in 3 of the 4, those trades now have too much inherent risk.

So what’s a trader to do? Ignore the warning sign and traverse beyond the point wearing a wingsuit and saying a prayer? Do what we did-walk to the edge, take a photo and then head back to the safety of the car?

For nearly 2 months, we have tracked the Modern Family members noting their divergence.

This week begins no less divergent. Our leaders, Semiconductors, Transportation and Regional Banks have bullish phases. Regional Banks made a new 2016 high early on in the session. Perhaps the next big mover, KRE at least shows more promise than the rest.

Semiconductors SMH and Transportation IYT, still have topping reversal patterns in place. So yes, impressive but they need more.

Granddad Russell 2000 bounced off of support levels, which is encouraging. However, the overhead 50 DMA looms as resistance keeping IWM in a warning phase.

Retail, in a distribution phase, at least hasn’t jumped or fallen from a cliff. As of Friday’s action, the possibility of a reversal, albeit a very low volume one, looks reasonable. Tomorrow should provide us with more evidence on which way Granny plans to turn.

Biotechnology IBB, hiked up to the warning sign and opened the fence door. IBB will jump into the abyss should it have a weekly close under the 200 week moving average.

For us, calculating risk/reward drives our decision before we enter into new swing positions. Therefore, until we can clearly see our way towards much higher or lower levels, we like the terra firma on this side of the fence.

Note: On October 2^nd I quoted the song Devil or Angel made famous by a teen idol from the sixties, Bobby Vee. Today, Mr. Vee passed away. R.I.P.

S&P 500 (SPY): 214 pivotal 216 resistance 212 support

Russell 2000 (IWM) 120 pivotal with 123 a better place to clear/close above

Dow (DIA) 180 do or die support area and 182.50 resistance to clear

Nasdaq (QQQ) New multiyear highs-follow now at your own risk

KRE (Regional Banks) 43.50 now pivotal area

SMH (Semiconductors) Gapped back over the fast moving average at 67.80 making that pivotal

IYT (Transportation) 143.10 the 50 DMA support

IBB (Biotechnology) 265 key weekly moving average

XRT (Retail) Low volume reversal pattern making 42.52 the risk if can clear the 200 DMA

IYR (Real Estate) 78.00 pivotal

ITB (US Home Construction) Low volume reversal pattern if can clear the 200 DMA

GLD (Gold Trust) support at 120.20. If breaks, see more downside