November 7, 2017
By Mish Schneider
Janet Yellen has led the Federal Reserve with a steady hand.
Even with the goal of winding down the Fed’s balance sheet, her “status quo” on rates stems from her uncertainty about the economy in the coming year.
The market tends to run six months ahead.
Therefore, the recent heat or solid economic factors such as unemployment and ISM Manufacturing, finally caught up to the new highs in the Dow, S&P 500 and NASDAQ.
However, the sell-off today and particularly the weakness in Transportation, Retail and Small Caps, could be forecasting the next 6 months.
How fast can a hot economy become lukewarm?
Yellen, our unflappable and experienced economist, departs in February 2018.
Jerome Powell replaces her.
He is not an economist. Nor, has he presided over any economic crises.
Can we see a downturn for two quarters in a row which will bring us to the unthinkable “R” word?
Scarier still, is that what follows “R” in the alphabet, is “S”, or the first letter of the word-stagflation.
Should an “R” or an “S” occur, would Powell raise rates to counter inflation or lower rates to try (for the 11th year), to spur the economy further?
I’m guessing the latter.
Now, all of this is pure speculation.
However, real signs for concern exist.
Transportation (IYT) a big focus, closed in an unconfirmed warning phase.
Retail (XRT) broke the 80-month moving average. First time since 2010.
The Russell 2000 broke the first line of support at 147. Unless it recaptures it quickly, 144.50-145 is huge.
Regional Banks (KRE) had a significant decline as well. Our prodigal has been lavish. That typically leads to its contrition.
Circling back to my other focus besides Tran (IYT), is commodities.
Oil digested the move up. Gold Silver, Gold Miners, DBC and DBA all had inside days.
Fertile soil in a cemetery attracts hungry Ravens.
Likewise, a low volatility, complacent market attracts vultures.
Tomorrow, please join Transportation Live on Facebook at 5 ET. https://www.facebook.com/events/179601429284839/
S&P 500 (SPY) 257.35 key line of support.
Russell 2000 (IWM) Needs to hold 147 or will see 145
Dow (DIA) 234.33 the 10-DMA been holding since early September
Nasdaq (QQQ) New all-time high close-are you thinking Mish is nuts by now calling attention to commodities?
KRE (Regional Banks) 54.80 key weekly support
SMH (Semiconductors) Shooting stars formation which means a gap lower should be taken seriously
IYT (Transportation) 175.00 pivotal as the 50-DMA.
IBB (Biotechnology) 310 support held-now looking at 317 to clear
XRT (Retail) Let’s see what happens at 38.00
IYR (Real Estate) Happy day here with the ease on rates. Confirmed bullish phase
XLU (Utilities) No surprise to see this rally given the market weakness
GLD (Gold Trust) 119.75 support. If clears 122 good sign
SLV (Silver) Inside day
GDX (Gold Miners) Needs to clear 23.10 with volume
USO (US Oil Fund) Inside day. 10.80 support
OIH (Oil Service Holders) Resistance at 27.00
XOP (Oil & Gas Exploration) Cleared 35.52 the 50-week MA, which is a good risk point
TAN (Solar Energy) Held the gap low which is a good sign right now
TLT (iShares 20+ Year Treasuries) 125.50 pivotal
UUP (Dollar Bull) 24.37 the 200-week MA and 24.80 resistance