Unless and Until The Fed Intervenes

September 20, 2015

Mish's Daily

By Mish Schneider

Been Spending Most Our Lives Trading in a Swing Trade Paradise

-Thanks Coolio for the beat!

The rally ended abruptly late Thursday and all day Friday after the market’s gremlin-the Federal Reserve- spooked investors when they announced that global uncertainty and deflation fears override a strong labor market in the US.

The Fed is looking for an inflation rate of 2%. A strong US dollar, good for the US economy, is muy malo for keeping the cost of goods down.

With zero interest rates, savers get nothing for their cash in banks. Yet spending, which increases demand and diminishes supply, abates in uncertainty.

What’s a Swing Trader to do?

The markets have been tough on both bulls and bears. The bounce off the August 24 lows has been shaking out the shorts and culminated in a painful squeeze rally after Thursday’s brief bullish reaction to the FED meeting.

Then Friday’s gap down trapped the bulls from the Wednesday –Thursday’s rally and left the risk/reward for new shorts skewed.

Coolio’s oxymoron describes conditions perfectly. Not exactly a paradise for swing traders, day to miniswing traders have had a much easier time.

Granddad Russell 2000 (IWM), for example, ended the week on support (relatively) holding the fast moving average.

Not one of the members of the Modern Family are looking too healthy. 3 of them-Retail XRT, Transportation IYT, and Semiconductors SMH-are in Bearish Phases.

Regional Banks KRE is below all moving averages but a bearish phase occurs when the 200 daily moving average crosses beneath the 50 DMA-a death cross.

Biotechnology is the only Family sector trading above the 200 DMA.

What to Look for This Week

Besides Biotechnology, the NASDAQ and a smattering of its instruments are in the best shape.

Many investors are looking to the FED to do another round of Quantitative Easing. Quoting Coolio, in the short term that would have investors singing, “I'm an educated fool with money on my mind. Got my 10 in my hand and a gleam in my eye.”

In that case, look at the leaders such as Amazon, Facebook, and Google. Keep an eye on Biotechnology against the 200 DMA.

Unless and until the FED intervenes, I see two options. Since volatility and big risk upset our swing trading paradise, day to miniswing trading short makes most sense. I list nearest support and resistance levels on the indices and ETFs below.

For swing traders who want to hold longs-patience and cash are your homies.

Back to Coolio-homage to the Bulls:

“Power and the money, money and the power

Minute after minute, hour after hour

Everybody's running, but half of them ain't looking

What's going on in the kitchen, but I don't know what's cookin'”

S&P 500 (SPY) Defended 195 which probably means a break below will see a quick trip to 190. Above and its back to watching 200 as resistance

Russell 2000 (IWM) Support at 114, 112, 110 which is good to note, since looks like most of these should be tested unless it gets back over 117 level

Dow (DIA) Biggest support is below at the 200 weekly moving average or around 153.40. Never filled an important gap last week so seems likely lower levels are in store

Nasdaq (QQQ) If Monday this opens up holding last Friday’s lows and then it clears back over the 200 DMA, a very good sign. And a very big “if.”

Volatility Index (VIX) Climbed back over the 200 DMA

XLF (Financials) 22.40 closest support. Only good if it clears back over 23.20

KRE (Regional Banks) 36.35 best underlying support. Note that if this can hold and clear over 40.15 that is a good sign

SMH (Semiconductors) Over 50.85 would be a tempting long swing buy. Otherwise, expect 48-48.50 support

IYT (Transportation) 142.50 support. 146 overhead resistance

IBB (Biotechnology) Inside day. Interesting

XRT (Retail) A monthly close over 45.38 keeps hope alive. Otherwise, looking at 44.00 next closest support

IYR (Real Estate) Inside day under the 50 DMA. Not a bad place to look if shows early strength

ITB (US Home Construction) still in bullish phase if Friday’s low holds up so best place to look.

GLD (Gold Trust) 110.50 really good resistance 106.90 support

SLV (Silver) A lot of overhead resistance