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Mish's Daily: Ta-ta Market Bears; Hello Fire Monkeys

May 29, 2016

By Michele Schneider


mdaily20160529

Last week’s photos, including today’s, are all of the same Grizzly taken by yours truly. Lucy resides at a bear preserve in Montana. She put on quite the show for us that day.
We cannot say the same for the Grizzlies of the market. Confined yes, but not very much in the mood for performing.

Lucy finds shelter at the rock. She stands to check out the territory before her. She’s alone, unable to join her kind in the woods.

We believe we have protected her for her own good. Yet, is Lucy better off at the preserve or is she simply a tourist attraction?

Compare this notion to the market bears.

The bears began this year with a free ride. In February to March, they were held captive. Presently, bears have become market tourist attractions. We look at them, take photographs, maybe even throw a few food scraps now and again. However, those who are long the market can leave the preserve each day and take profits. The bears sit around and plot their escape.

I themed the commentary last week to the bears purposely. I believe they have yet to start covering shorts. Likewise, many investors remain sidelined in cash.

Does that mean holding the bears in captivity is for the market’s own good?

Depends upon whether you think the market can sustain current levels.

I recollect in mid-February this year most analysts were predicting the market would crash further. And why not? A reasonable assumption given the start of 2016 and the tremendous volume that came along with the sell-off.

But just as things look horribly wrong, they suddenly became impossibly right. Now, the opposite could well be true.

When the market looks amazingly strong, I never discount that things could turn utterly sour.

The S&P 500 sits right at resistance going back to November 2015. NASDAQ filled a gap from over a month ago. Typically, I recommend buying the next dip after a gap is filled expecting a move even higher.

The Russell 2000 closed the week over a key weekly moving average. First time since July 2015. The Dow boarded the “Twilight Zone” airplane once again, wondering if it will see another gremlin at 18,000.

Regional Banks and Semiconductors both performed well. Semiconductors have one more push over 56.99 to keep going north.

Retail, Transportation and Biotech look sickly in comparison. That creates two distinct possibilities for traders. Either their disease spreads to the other areas of the market. (What the bears wait for). Or, they kick into high gear with lots and lots of room to play catch up.

One tidbit I haven’t mentioned in a while with all this talk of bears and bulls-monkeys. As this is the Year of the Fire Monkey, let me remind you.

Fire monkeys like adventure. Fire Monkeys combine the cleverness of a monkey with the passion of fire. It could lead to an opportunistic or even deceitful and impatient atmosphere.

We traders do well to stay vigilant, keep emotions in check and think before we act.

Finally, a word to the bears and bulls: Like the way of the monkey, as soon as you realize that a path is not fruitful, attempt a new one instead. Do not stay stuck trying to analyze the past while the present passes you by.

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

Russell 2000 (IWM) 115.05 resistance. Support at 113.00

Dow (DIA) Lovely-2 inside days which means watch and follow the way the range breaks.

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

XLF (Financials) Closed well and with an inside day.

KRE (Regional Banks) Like the Dow, 2 Inside days. Means the trading range was inside the day before trading range which was inside the day before that’s trading range. Follow the range break

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

IYT (Transportation) Unconfirmed 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) Got the weekly close over 41.75 with a huge job ahead of it to keep going

GLD (Gold Trust) Very oversold.

SLV (Silver) 15.20 should hold

GDX (Gold Miners) 21.94 last week’s low to defend if good

USO (US Oil Fund) Closed the week out well. 11.80 support

OIH (Oil Services) 28.50 on a weekly close is important to clear but still better now that’s it over the 200 DMA

XLE (Energy) This has a lot of room higher

XOP (Oil and Gas Exploration) Held where it needed to

TAN (Guggenheim Solar Energy) 21.70 support

TLT (iShares 20+ Year Treasuries) 129 support to hold

UUP (Dollar Bull) 24.55 pivotal with 24.95 substantial resistance

FXI (China Large Cap Fund) If holds 32 could see 34. Quiet inside day