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February 12, 2016
By Mish Schneider
Bottomless Gravitational Pit (Not)
One of the headlines last week read, “With faint chirp, scientists prove Einstein correct.”
In Einstein’s theory of relativity, he predicted a universe in which space and time are interwoven and dynamic, able to stretch, shrink and jiggle.
The nature of black holes, the bottomless gravitational pits from which not even light can escape, was the most foreboding part of Einstein’s theory.
Using a pair of L-shaped antennas in Washington and Louisiana, scientists heard a “chirp” which allows them to hear and not just see warped space-time when it’s calm.
It essentially puts “ears” to the “eye” of astronomy.
The theory of market relativity, might be a bit different. Although the market definitely stretches, shrinks and jiggles, nobody has tried to prove it makes noise or ever denied that it does.
Similar to Einstein, we do have our fair share of foreboding predictions that the market can be a black hole. Yet, it turns out that buying came in on Friday, preventing prices from entering a bottomless gravitational pit.
Bear markets notoriously have some of the best rallies. We wonder if last Thursday and Friday put in a bottom or was the rally just another warped space-time dead cat bounce?
Do Bull ears hear a “faint chirp” or a thunderous roar?
Depends where you look.
From a fundamental standpoint, the market got through Fed-speak, with no apparent change in policy.
In other news, Oil (after OPEC claimed its willingness to cooperate) rallied 12%, the biggest one-day jump since 2009. U.S. Consumer spending countered recession fears. U.S. jobless claims underscored labor market strength.
No black holes, right?
Technically, last Thursday night I pointed out the classic signs of a bottom. Oil met the criteria and confirmed on Friday. However, USO, the ETF, did the same thing on January 21st. Oh sure, buyers came in for a few days. And then oil made new lows again earlier last week.
Will OPEC change the dynamics and help this rally sustain? I’m not going to sit up at night and worry about that. Instead, when buying new lows on a potential bottoming pattern, clear risk points and delineated profit targets help me sleep better.
One last thought about our metaphorical Granddad Russell 2000 (IWM.)
Using the 5 Criteria of a Bottom, IWM did not meet any of them. What has saved me from getting too giddy about any rally since last July 2015 is that IWM has traded within its own black hole.
Therefore, other than a low volume potential 2-day bottom, we must see and hear Granddad revive. Otherwise, Einstein might call last week’s rally nothing more than a trapdoor in space.
S&P 500 (SPY) Back above the 6-mo calendar range low. Possible double bottom. Has miles though to clear 195 before really convincing.
Russell 2000 (IWM) Over 98.15 gets interesting
Dow (DIA) Back above the 6-month JCRL and more importantly, the 200 weekly moving average. 158 now, must hold.
Nasdaq (QQQ) Like to see this clear 100 and hold 94
XLF (Financials) What do you get when you cross Jamie Dimon and an oversold financial sector? A potential island bottom. Has to hold 20.00 to confirm
KRE (Regional Banks) Decent 2-day reversal pattern here. Needs to clear the 10 DMA
SMH (Semiconductors) This like everything else, has the makings of a bottom-we need more evidence of that
IYT (Transportation) I would be happier if there had been volume, but at least it is above 124.50 and could see that gap fill to 128.79 I wrote about last week
IBB (Biotechnology) Held the 200 week moving average at 239.40 and rallied-can it sustain?
XRT (Retail) Low volume return over 38.65 the 6-month JCRL and like so many others, must now clear the 10 DMA at 39.45 and hold above
GLD (Gold Trust) Most encouraging is that with the market rally, all this did was have an inside day and with huge volume
SLV (Silver) Inside day.
GDX (Gold Miners) 11+ million shares traded here the last 30 minutes on Friday. Plus, it closed on new monthly highs. It seems this can go to around 23.00
USO (US Oil Fund) What is interesting is that Exxon Mobil had a phase change on the weekly chart. Slope negative, has to confirm, but worth watching for sure. UOS had 2 solid volume days while going green.
TAN (Guggenheim Solar Energy) I had a target of 20.00. Got there Friday. Looks like shooting stars so will be very interested to see if that was it on the downside
TLT (iShares 20+ Year Treasuries) I hope you exited any longs. On that 2-day bottoming pattern with volume? TBT has one.
UUP (Dollar Bull) 25.27 the overhead resistance