Woes/Whoas in the Rally of Enchantment

May 31, 2016

Mish's Daily

By Mish Schneider

mdaily20160531

A license plate paradox. How can one have dismay or grief (the meaning of oy vey) in the Land of Enchantment?

Similarly, did the market just have a “woe is me” moment during what many believed would continue as the rally of enchantment? Or is that a “Whoa is me?”

Last week, I mused about bears. Out of hibernation and growing in population, they remain confined to a preserve. Bears understand they could continue to multiply if they stay within the preserve walls. Yet, they run the risk of getting hurt if they venture beyond their anointed boundary.

I ended the week wondering how many bears plot their escape regardless of the risks?

In Sunday’s commentary we recalled the 2015-2016 market theme, “When the market looks amazingly strong, never discount that things could turn utterly sour.”

Did we see first signs of that happening this last day of May? For me, I turn to my Modern Family of Fire Monkeys for answers.

We came into this week with the S&P 500 close to the November 2015 resistance at 211.50 and the April 2016 swing high 210.92. Today’s session high for SPY-210.69.

The Russell 2000, clearly the mover and the shaker of this recent rally, closed last the week over a key weekly moving average. Today, Granddaddy IWM marginally cleared the December 30, 2015 high of 115.35 (the high before the crash) to make a new 2016 high of 115.54. Closing at 115.00, the Russell continues to take an important leadership role.

Last week’s high (114.60) now becomes a pivotal number for tomorrow with support all the way down to 108 before bulls should totally throw in the towel.

Semiconductors needed one more push over 56.99 to keep going north. Today’s high 56.93.

Retail, Transportation and Biotech came into the week with two distinct possibilities. In either put up or shut up mode, all closed green. If IYT can clear 140.60 and hold, expect the others to keep going. Should IYT fail 138.75, red fire monkey tails will be raised.

Remember, as this is the Year of the Fire Monkey, if they realize that a path is not fruitful, they will attempt a new one instead.

Naturally after 5-6 days in a row of an enchanted rally, some correction and profit taking is in order. No fruit supply lasts forever.

Question now is where will the monkeys turn to for their next meals? Will they enter bear territory where seasonal berries become plentiful? Or will they find the bear preserve too confining and head out beyond the woods in search of greener and fruitier pastures?

S&P 500 (SPY) April high 210.92. Has to hold 208.50

Russell 2000 (IWM) An accumulation day with a higher close and good volume, hard to get bearish. Anything can change of course. Would take a strong reversal pattern to bring the bears back in

Dow (DIA) After 2 inside days the dow tried to clear the highs and ultimately closed below the lows. 177.29 is the 50 DMA support to defend.

Nasdaq (QQQ) 110.60-111 next resistance. Has to hold 108

XLF (Financials) Closed red but with no discernable pattern

KRE (Regional Banks) 41.91 is the place for this to close above on Wednesday. Otherwise, could see 40.10 quickly

SMH (Semiconductors) 56.00 pivotal. Then the December high 56.99

IYT (Transportation) Confirmed phase change back to warning. Has 2 hurdles. The 50 DMA at 140.60 and the weekly MA just slightly below that.

IBB (Biotechnology) 272 support. Now through 275 could see 290

XRT (Retail) 41.75 is the support to hold

IYR (Real Estate) Sitting on the 50 DMA

ITB (US Home Construction) Inside day right near the 2016 highs-inflection point.

GLD (Gold Trust) Held 115 level which is my bottom line hold point

SLV (Silver) 14.90 support with 15.20 pivotal