How Long Can the Market Avoid Crushing the Bulls?

November 30, 2017

Mish's Daily

By Mish Schneider


Transportation (IYT) is clearly the star of the week.

Fueled by record sales from the Thanksgiving sales blitz, goods are moving.

IYT, from the 50 daily moving average breakout and phase change, rose by $11.00 in 2 days. Heady stuff.

The debate on the effects of tax reform passing are equally as heady.

Trickledown economics, at least in my lifetime, has not worked as far as creating more jobs.

In fact, based on hard data going back 75 years (longer than my lifetime), GDP growth diminished within 5 years after tax cuts were implemented.

However, if corporate profits increase because of their beneficial tax cuts (also not proven), they will invest in research and development.

That means more automation and AI, which in turn means fewer jobs and decreased overhead.

Who wins? Shareholders.

At least until the reality of a lower GDP hits the market.

Furthermore, the Fed is itching to raise rates and has suggested a hike in December and perhaps 3 more hikes in 2018.

How will that impact Transportation?

The U.S. dollar should gain in strength if rates are raised. That makes U.S. goods more expensive to export.

Another point, the tax bill will increase the deficit by $1.5 trillion over the course of 10 years. That means the U.S. will have to borrow a lot more money.

The cause/effect could be that money to fund the deficit will reduce the government’s ability to invest in economic productivity.

Henceforth, less money invested towards growth, results in an economic slowdown, which naturally, impacts corporate profits.

Sounds complicated, especially since the market made new highs again today. The Dow Jones (DIA) made a second runaway gap.

So that brings us back to the question I and others have asked over and over-is this the final stage or the blow off rally?

Which brings me back to the Modern Family.

Sister Semi’s has already given up a lot of the last leg of gains.

SMH has failed the 50-DMA twice thus far this year. With an inside trading range today, the third time it closes under the 50-DMA (now at 99.00), we have one last place to look for support-96.40. That moving average has held up since May 2016.

Transportation (IYT), best to look for a classic reversal top. I will report on that when and if I see it. I imagine it will begin with IYT closing under 181.57, the old all-time high.

Granny Retail (XRT) rallied right into the 200-Week Moving Average resistance. 42.65 now the pivotal support to hold.

KRE (Regional Banks) DEFINITE Blow off rally reversal pattern possible. Wouldn’t that be so like our Prodigal Son?

Biotechnology- (you will meet him on a Facebook live tomorrow)-saw buyers today. Yet the overhead resistance is concerning. So, unless it pulls an IYT and clears the 50-DMA and changes phase, be duly warned.

Finally, imagine the bicyclist as Grampa Russell 2000.

Thus far, his ability to avoid crushing the market bulls has impressed us. Yet, should IWM end this week closing under today’s low, bulls could find themselves branded by tire treads.

S&P 500 (SPY) On a 20-day close, the relative strength signals overbought. On top of that, today had the volume that could lead to the blow-off rally.

Russell 2000 (IWM) Close near the lows after making new highs. Reversal potential

Dow (DIA) It’s definitely time to reissue the Terror at 25,000 warning. Huge volume rally should be opportunity to take profits

Nasdaq (QQQ) Narrow range inside day-not convincing enough

KRE (Regional Banks) DEFINITE Blow off rally reversal pattern possible. And I haven’t said that in a very long time

SMH (Semiconductors) 99.00 the 50 DMA

IYT (Transportation) Another one with blow off rally potential-all it will take is a confirmation of a reversal pattern

GLD (Gold Trust) I’m certain if you did the volatility trade you are making some money. 120.40 the 200 DMA support

SLV (Silver) I would like to see a close over 15.56 tomorrow

GDX (Gold Miners) 22.00 is now the support to hold

XME (S&P Metals and Mining) 31.00 should hold now

USO (US Oil Fund) An exhaustion gap if this cannot clear 11.70. Then, could see 10.96

XLE (Sel Energy Spdr Fd) Finally moved into an unconfirmed bullish phase

TAN (Solar Energy) 23.30 the 50-DMA

TLT (iShares 20+ Year Treasuries) First close under the 50-DMAfor an unconfirmed warning phase

VXX (Volatility Index) Haven’t written about this in a while-on my radar!

UUP (Dollar Bull) 24.40 resistance 23.98 some support

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