What Came First: Semiconductor's Chicken or Russell 2000's Egg?

October 15, 2015

Mish's Daily

By Mish Schneider

In the wake of earnings season and after several attempts at more downside in the overall market, seems that Semiconductors are turning out as our crowing Rooster.

With the trading range from August 24^th lows to September 17^th highs intact in many instruments, especially as we look at the Modern Family, our little brother Semi’s has been kicking butt and taking names.

Currently, the Russell 2000s closed just above the 50 DMA as Semiconductors test the 200 DMA. In fact, up until Thursday’s session besides Semiconductors, only Transportation was trading over the 50 DMA.

Wednesday, KRE, which had been in a bullish phase, swiftly fell into a death cross with price under both the 50 and 200 Daily moving averages. The rally late Thursday took KRE back over the 50 and 200 DMAs.

Does this mean the market will move much higher?

NASDAQ, especially the leading stocks like Amazon, Google, Facebook, show the most promise. QQQs cleared over the 200 DMA entering an unconfirmed Phase change to Accumulation.

Doubtful we will see 18,000 again in the Dow in the foreseeable future, but here is what can happen in the meantime.

Like in the chicken or the egg conundrum, such seems to be the case if one compares the Semiconductor (SMH) to the Russell 2000 (IWM) chart.

SMH is trading just under 54.15 the 200 DMA. Since not in an overbought condition, if clears, expect to see 56.00 fairly quickly.

If that happens, Semi’s (starting with SanDisk’s news about a possible sale to Micron Technology) will have something to cock-a-doodle-do about.

If SMH rolls over and fails 52.00, we can blame our caged chicken IWM as first to the chopping block.

The Chicken or Egg Dilemma

So, will Semiconductors fail the 200 DMA and in turn stop the rally cold in the Russell’s (as well as most other instruments)?

Or, will SMH clear the 200 DMA and take IWM up to 118.89, the September 17^th high?

If we set a metaphysical ground to the question of the chicken or the egg, we are better off reformulating that question to ask, “Which came first, X that can't come without Y, or Y that can't come without X?"

Bottom line, The FED runs the chicken coop. One crack at an interest rate rise, and hello Chicken Little! Both the chickens and their eggs want to keep the feed flowing!

S&P 500 (SPY) September 17^th high 202.89. If that clears then can see 206. Under 200 will be back looking at the 50 DMA

Russell 2000 (IWM) Unconfirmed phase change to recovery-needs a second close

Dow (DIA) 170 pivotal with a move over 172.64 reason to think 175.50 next

Nasdaq (QQQ) Lets see if this can hold 107

XLF (Financials) Moved right up to the 50 DMA-needs to clear it to keep the market in alignment

KRE (Regional Banks) Inside day and a close right on the moving averages converging-WATCH here

IYT (Transportation) 146.55 pivotal. September 17^th high 149.86

IBB (Biotechnology) Closed over 310 with a bullish engulfing pattern

XRT (Retail) Unless clears the 50 DMA at 46.30, under 44 trouble

IYR (Real Estate) 76 major overhead resistance with 73.20 support

GLD (Gold Trust) Confirmed the Accumulation Phase

SLV (Silver) Inside day over the 200 DMA-looks good