When Reflection Overrules Market Luster

March 8, 2017

Mish's Daily

By Mish Schneider

Sometimes, what catches the eye is the reflection rather than the thing itself.

For quite some time, the thing itself has had enough shine to superficially attract onlookers.

However, with the 5^th day in a row of declines in the Russell 2000, many investors begin to look beyond the shine to the reflections.

The Economic Modern Family holds up shiny objects to a mirror. When they all see the same luster, the optimisim of that shared vision is palpable.

When reflection overrules luster, each member responds to the visage subjectively.

Hence, the Russell 2000 entered an unconfirmed Warning Phase. Not surprising considering that Transportation sits close to its 50 DMA. Granny Retail bounced off the new 2017 low it made yesterday, but with noticeably less daily volume than its average.

Regional Banks, even with the better-than-expected weekly jobs claim report and higher interest rate yields, did little to wow.

And Biotechnology sucked back in speculators with its moderate shine. Yet, IBB could not clear the pivotal price point of $300.

Through it all, the quintessential shiny objects, gold and silver, appear tarnished at first glance.

However, if we look deeper, are tarnished metals hiding a much glossier reflection?

Gold has fallen out of favor for two fundamental reasons. First, the prospect of higher rates. Secondly, the decline of several commodity prices and skepticism regarding inflation.

Technically, GLD or the gold ETF has my interest more now that it had throughout February’s rally.

The price sits on a key monthly moving average. On the weekly chart, the downside risk appears limited. On the daily chart, GLD hugs the 50 DMA.

How about the influencers?

Interest Rates, or the 20+ Year Treasury Bonds, approach last December lows. Nevertheless, even if rates rise, let’s look not at the superficial shine but rather the reflection.

Does that seal the fate of rising inflation?

Whereas Silver has outshone Gold this year, I now wonder for how much longer?

Commodities have been hammered indeed. Nonetheless, I see the retreat to December prices a burgeoning low risk buy opportunity.

Sugar, coffee, wheat and corn could easily find interest at current levels. Which in turn should help gold more than silver. Which in turn could spark a rising consumer price index. Which in turn, could lead to stagflation.

Now granted, I am getting ahead of myself. But not really. I’ve been looking through shiny balls for some time now. The reflection I see has consistently led me to these same conclusions.

S&P 500 (SPY) Support at 236.50 on the monthly chart. Then not much until 230. If takes back 237.50 a relief but not more than that.

Russell 2000 (IWM) Unconfirmed warning phase which means needs a second day to confirm

Dow (DIA) Best hope is that still holding a runaway gap with 208.37 the number that fills it

Nasdaq (QQQ) May have closed green, but under 130 could see weak longs shaken out

KRE (Regional Banks) 57 support to hold and back over 58 better. 56.25 the 50 DMA

SMH (Semiconductors) Unless this clear 77.50, looks toppy especially if fails 76.22 today’s low

IYT (Transportation) 167 major support at the 50 DMA

IBB (Biotechnology) Unless it closes back over 300, don’t fall in love

XRT (Retail) Granny closed back over 42.11 on low volume

IYR (Real Estate) Went from looking promising to looking like a giant bear flag forming

GLD (Gold Trust) On the 50 DMA. Oversold-back over 115.60 low risk buy

SLV (Silver) 16.50 pivotal