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Mish's Daily: Will the Dow’s Rally Stop at the 50 DMA?

October 5, 2015

By Mish Schneider

So this is how the world works, all energy flows according to the whims of the great magnet. -

Hunter S. Thompson

Those who prescribe to the “Law of Attraction” believe that intention converts into encoded information that in turn, shapes physical reality.

The Stock Market as a prime example, is an external entity that often moves up and down partly because of our human collective “intentions” about which way it ought to move.

When the market experiences collective “intention”, we often see strong moves up towards or down to major moving averages.

Last week, the S&P 500 had the highest short interest since 2011. Beginning with the decline in price early last Friday morning, the psychology changed, and by day’s end, short interest collectively snowballed into a buying frenzy.

Monday, that buy-fest continued with nary a dip.

Interesting is that the Dow (DIA), in particular, ran all the way up to its 50 DMA (now sitting at 167.77 with a declining slope.)

Back to Collective Consciousness, the 50 DMA and What Happens Next

I’ve sure tried to do my part. First, writing about commodities and bottoming action I saw in Oil, the Metals and particularly, several Agricultural Commodities like Sugar, Corn, and Coffee.

Then, a week ago exactly, I turned my attention to Solar Energy with a plea to buy American companies trying to do what America is best doing-innovating technology!

Now, I must respect the 50 DMA on all accounts. Those instruments that rallied to it, those that have pierced and closed above it and those that haven’t yet come close to it.

Let’s analyze each scenario:

DIA: Rallied to a high of 167.78. The 50 DMA is at 167.77. The Phase is Bearish and strongly so if one considers the declining slope of the 50 DMA. Unless this clears and closes above the 50 DMA for 2 consecutive days, I have to think the rally has seen its zenith.

Note that the Dow’s September 17th high at 169.44 will be another wall of worry for bulls to climb up to should the 50 DMA clear.

USO: Closed for the second day over the 50 DMA, first time since June. A weak Recovery Phase since the slope on the 50 DMA still negative. Seems more like consolidation therefore, has to hold 14.15 clear 15.20.

TAN: Further away from its 50 DMA at 30.70 (Monday’s high 30.03), and also in a strong bear phase, this will look impressive over 31.00 and not so much under 28.00.

A Sigil is a symbol used in magic. In modern times, Sigils are used as symbols to depict meaningful representations that exist in our minds.

If the 50 DMA is the market’s Sigil, watching how any instrument moves around its 50 DMA, should help you determine the instrument’s next intermediate trend.

S&P 500 (SPY) 200.22 the 50 DMA. 195 next big underlying support

Russell 2000 (IWM) 114 hefty resistance, 110-111 support and the 50 DMA quite a distance away.

Dow (DIA) September 17th high at 169.44 resistance. 165 some support

Nasdaq (QQQ) I came into this week thinking, “maybe a rally closer to 106-107 for a new and less risky short.” Still think that

Volatility Index (VIX) With a strong upward sloping 50 DMA as support, another reason to think rally long in the tooth

XLF (Financials) As far as I can see, still consolidating

KRE (Regional Banks) Sloppy chart but nice move to the 200 DMA if sticks. If not, under 40.50 trouble

SMH (Semiconductors) Closest to the 9/17 high of 51.88. Over the 50 DMA which is not support at 50.00

IYT (Transportation) A perfect example of piercing the 50 DMA but closing beneath it. Has one more chance or under 144 trouble

IBB (Biotechnology) Closed right near 310-pivotal. Now, over 310 maybe we see 330. If not, take this as fair warning

XRT (Retail) 46.00 resistance with 44.50 support to hold

IYR (Real Estate) Rallied to resistance at 73.35 and now, over the 50 DMA which has to hold at 72.48

ITB (US Home Construction) 27.00 the 200 DMA and pivotal

GLD (Gold Trust) Actually, considering the rates firmed this held up well. Over 110 still the number to clear

SLV (Silver) like better over 15.00

GDX (Gold Miners) Confirmed phase change to recovery

USO (US Oil Fund) Major consolidation which for now looks good to the upside if clears

OIH (Oil Services) Classic move to the 50 DMA

XLE (Energy) Needs a second day to clear and close above the 50 DMA

XOP (Oil and Gas Exploration) Ditto here like in XLE

TLT (iShares 20+ Year Treasuries) The 50 DMA 122.59 to hold

UUP (Dollar Bull) 25.00 pivotal

EWG (Germany) Cluster bottom possibly if holds 25.02

FXI (China Large Cap Fund) Unconfirmed recovery phase

CORN (Corn) Over 24.00 gets real interesting

DBA (PwrShs DB Ag Fd) Real close to the 50 DMA

DBC (DB Commodity Index) Unconfirmed phase change to recovery

SGG (Sugar) Sweet

JO (Coffee) Percolating