When Your Cockatoo Has His Fill of the Market

January 29, 2018

Mish's Daily

By Mish Schneider

blankToday’s headline on Reuters: “U.S. consumer spending rose solidly in December as demand for goods and services increased, but the gain came at the expense of savings, which dropped to a 10-year low in a troubling sign for future consumption and economic growth.”

That’s the American way for you. Spend more, save less, go into debt.

Even the family’s cockatoo gets a day out to share some roasted corn, raising consumption, hence supply and demand.

About 1/3 of families in the bottom 50% of earners own stocks.

Approximately 54% of Americans are invested. That’s down 11% since the Great Recession.

The richest 10% of Americans own 84% of all stocks.

That’s the backdrop.

How does that fundamental statistic align with my recent focus--a breaking of and a closing price below the first line of support?

To review, we have been watching S1 (a floor trader pivot)-or the first support line on 30 minute bar charts.

Over the weekend, to narrow down the focus, we are watching the S&P 500 ETF SPY.

Today, SPY has not closed under S1 for the 21 trading days in January.

Today, S1 in SPY came in at 284.83. Today’s low in SPY 284.50. Once again it broke S1 intraday, only to close right on it by end of day.

Technically, the closing price is 284.64, but it ticked up after hours to settle on S1. Let’s call S1 an area and look to see what happens tomorrow.

Apparently, we are not the only ones watching S1.

Uncanny how a simple pivot point is keeping us from:

  1. Calling a top
  2. Getting out of our existing longs too soon
  3. Adding too much further exposure
  4. Going short or adding protection

The second layer we are watching to break or to hold are the Transportation (IYT) and Semiconductors (SMH) sectors.

Transportation remains the most vulnerable. Although IYT remained green throughout the day, it could not close over R1-or the antidote to breaking S1.

That means, tomorrow a new break of S1 can have a negative impact.

That means, once again, we can have a perfect technical storm setup.

Given that eventually, consumers will wind up feeling pinched by flat wages, and increased debt, the market could be one wave away from a serious correction.

The perfect storm is when we get a close in SPY under S1 (projected at 283.98), weakness in IYT (S1 at 199.15-the low today 199.16 and weakness in Semiconductors SMH (S1 at 107-today’s low 106.50.)

S&P 500 (SPY) It’s all about S1. It barely held by the end day, but may really sell off tomorrow if cannot get back above 286.

Russell 2000 (IWM) 158.50 is the fast-moving average, with S1 also close to that level. That’s what you want to see hold.

Dow (DIA) Closed under S1-first time in 21 days-however, not as sexy as SPY.

Nasdaq (QQQ) S1 under today’s low or 169.70

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