March 1, 2016
Mish's Daily
By Mish Schneider
Welcome to the Jungle
After my modification of the Rolling Stone’s song “Goodbye, Ruby Tuesday” to “Hello, Super Tuesday,” we sure found out “How stocks will react to you.”
After the indecisive and defensive action of Monday, on Tuesday the market came to life.
All the usual suspects rallied. Those in the Modern Family complied as well with our Prodigal Son, Regional Banks (KRE), leading the charge closing up 4%.
Makes sense though, as we will often see the most hammered instruments make the most substantial one-day gains. Welcome to the “rip the bear’s face off” rally.
I remain proud of how early on I alerted you to the Transportation Sector (IYT). It fit all my favorite criteria for a bottom.
Yet even with the strength in the Transportation Sector, Mr. Dow (the creator of the Dow Theory) said, “Trends exist despite ‘market noise’. Markets might temporarily move in the direction opposite to the trend, but they will soon resume the prior move.”
As this is the Year of the Monkey, to shed more light, please allow me to refer to the Epsilon Theory and Ben Hunt’s, Welcome to the Jungle.
Historically, when the combination of wealth inequality, political polarization, domestic policy uncertainty and shifts in monetary policy all line up at the same time, it can yield a zero-sum game.
That describes the current situation in a nutshell.
That means if the recent strategies of the Central Banks to keep rates below negative continues, without any clear winners or losers, the US might be inclined to pursue negative rates as well out of both self-interest and self-defense.
I have no strong feeling about that prediction other than to tell you that not only does Ben Hunt think so, but so do Ray Dalio, George Soros, Ben Bernanke and many others.
Technically, if one looks at the weekly and monthly charts, most instruments are in a negative phase. On the daily charts, this impressive run can still be defined as a vicious bear market rally.
For now, all central bankers are swinging on the trees of negative rates and currency devaluation. If Mr. Hunt is correct and political shift takes place in monetary policy, then I recommend you pay close attention to the “talk” of today’s Super Tuesday winners on both sides.
Then, do what I do-watch price action. Gold is holding recent gains even in this stock market rally. Copper, Steel and Oil are trying to bottom. Like IYT they’ve been kicked around for a long time. Like IYT, they all fit my criteria for a bottom. Unlike IYT, they’ve been kicked around way longer.
Are commodities telling us something about where we are, what is next and what we should do about it?
S&P 500 (SPY) A daytrader’s dream once this cleared 195. Now, has room to 202 potentially and can still fail from there no problem.
Russell 2000 (IWM) First time over the 50 DMA so an unconfirmed phase change to recovery. Needs a second close
Dow (DIA) Back to an unconfirmed recovery phase. 170-172 big resistance
Nasdaq (QQQ) Unconfirmed recovery phase. Needs another close over 104.28. 108 big resistance
XLF (Financials) Ran right up to the 50 DMA
KRE (Regional Banks) 35.81 support now to hold and the 50 DMA still overhead at 37.36
SMH (Semiconductors) Really into some resistance now. If you are interested in buying you are late to that party
IYT (Transportation) Filled the gap to 134.23 and kept going. That number is a big one on the weekly charts-if good, should hold it by the end of this week
IBB (Biotechnology) If today was a sign that speculative money is coming back in, now I am really nervous about being too long.
XRT (Retail) Granny got groove-however, she must hold 43.20
IYR (Real Estate) Landed right on the 200 DMA resistance
GLD (Gold Trust) I see no reason to not continue watching for a buy opportunity unless it breaks 115
GDX (Gold Miners) Let’s see what happens around 17.80.
USO (US Oil Fund) A close over 9.35 would be the best close in a month.
XLE (Energy) Over 58.50 like it to 61.00 area.
UNG (US NatGas Fund) Can a commodity go to zero??
TAN (Guggenheim Solar Energy) Still aside on this although if fills the gap to 23.88, I would look to buy the next dip
TLT (iShares 20+ Year Treasuries) 130 pivotal
UUP (Dollar Bull) 25.25 is the area to hold
EEM (Emerging Markets) Partied like its 2014
FXI (China Large Cap Fund) Seems my commentary shows that China will do anything to bolster itself up. However, it did not get over the 50 DMA
Every day you'll be prepared to trade with:
