Is the Market a Hot Air Balloon?

October 10, 2017

Mish's Daily

By Mish Schneider

The U.S. market made new highs today (in the DJIA).

Certainly, the market makers are fueling the balloon with fire.

My radar screen looks as colorful as these balloons.

Stocks such as JetBlue (JBLU) roared into an unconfirmed Recovery Phase. Other stocks such as TripAdvisor (TRIP) and Pandora (P), fell hard.

The Modern Family all gained. Regional Banks (KRE) went neck in neck with Transportation (IYT) for the highest percentage gainer.

Granny Retail barely budged. However, at least XRT is holding above 40.00.

It’s Russell 2000 (IWM) where I always keep my focus.

No surprise that ahead of the FOMC minutes due out Wednesday, IWM had an inside day.

Yesterday, IWM made a new all-time high and closed on the intraday low.

With today’s inside day, tomorrow sets up as an anything-can-happen day, regardless what everything else is doing.

When piloting a hot air balloon, there are 2 concerns.

First concern-conflagration. Not so much a concern for the market. Most folks anticipate the current flames will go higher in a good way.

Of course, too much fire can cause a blow-up.

The second concern and our metaphor for the day?

What would a market tangled in power lines look like?

“The greatest threat to the bull market, running into its ninth year, isn’t that valuations are too lofty but instead this period of low volatility and complacency, which statistically should revert to its normal roll and pitch”, according to Michael Gayed, portfolio manager at Pension Partners LLC.

We have a hot air balloon flying in a wide-open field with no power lines in view.

So, what if our hot air balloon pilot gets any more complacent?

Power lines can show up unexpectedly.

Oh sure, the pilot has some control over the balloon’s direction. Yet, what if the market cannot avoid power lines hence runs the risk of electrocution?

Watch IWM particularly. Should the FED create a power line, IWM will fail 149.18 and possibly drop to next support around 145-146.

That will not impact the recent market complacency however. That will merely shake out the longs of the more active traders.

What will make balloon passengers panic in the basket is some other watershed event.

Which is why I maintain my recommendation that you look at the historically low ratio between stocks and commodities.

Today, both DBA and DBC (featured in last night’s Daily) rallied.

Perhaps a one-day wonder. Or perhaps the start of something bigger.

Regardless, I remind you that when commodities run hot, they sizzle.

And when balloons tangle with power lines, they fry.

S&P 500 (SPY) Doji day, which is kind of like an inside day. Open and closing levels virtually the same or PAUSE.

Russell 2000 (IWM) Yesterday closed with a reversal topping pattern if confirms with a close under 149.18 Wednesday.

Dow (DIA) Balloon keeps flying

Nasdaq (QQQ) 146.20 support.

KRE (Regional Banks) 57.26 next place to clear

SMH (Semiconductors) Exuberance runs amok

IYT (Transportation) 176.97 number to hold

IBB (Biotechnology) 340-343 resistance with now 337 pivotal support.

XRT (Retail) The weak tend to get hit first. Granny better hold 40.00

IYR (Real Estate) I would not want to be long under 78.00

XLU (Utilities) This rally today illustrates investors that might be a tad worried and bought into a safety play.

GLD (Gold Trust) 123.10 the 50-DMA to clear

SLV (Silver) A commodity that has my interest.

GDX (Gold Miners) 23.50 pivotal support

XME (S&P Metals and Mining) 31.60 key support

USO (US Oil Fund) Nice move up with 10.35-10.50 resistance to clear

OIH (Oil Service Holders) Broke the 25.40 support

TAN (Solar Energy) 21.00 major support to hold. Resistance at 22.00 to clear

TLT (iShares 20+ Year Treasuries) 123.87 pivotal 122.60 support and 124.87 resistance

UUP (Dollar Bull) 24.30 now pivotal resistance and 24.00 pivotal support

FXI (China) 45.00 support point to hold

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