December 28, 2016
By Mish Schneider
Bison in Formation on Carpet
Pasture bison are typically calm and easygoing animals. However, once confronted with ill-informed handlers they become "wild beasts." To prevent bison from stampeding, handlers must approach cautiously.
Bison prefer to stay within the herd. Once the herd separates, panic can set in.
Market Bulls have spent over a month of congregating within a herd. “Handlers” made sure they remained in a state of calm.
The Dow took a fourth attempt to get over the top of the wall of 20,000. Instead of perpetuating calm, this time, the market bulls perceived its failure to do so as a barrier breakdown. Hence, the bulls headed into a flight zone.
With 2 days left to trade in 2016, will the market bulls turn to face the threat or panic and stampede?
Although the indices fell ½ to 1.00%, it is some of the sectors that really have our bison on high alert.
Looking at the Modern Family, the Russell 2000 dropped down into daily chart support. Since December 7th, IWM has tested 134-134.50 five times including today.
My major areas of concern, Retail and Biotechnology, became even more concerning. XRT (Retail) deteriorated into a Warning Phase. IBB (Biotechnology) confirmed a Bearish Phase.
The stronger siblings, Regional Banks (KRE) and Semiconductors (SMH) held the fast-moving averages. Although they both could have seen the first day of a reversal topping pattern, it is premature to make that claim.
Transportation (IYT) which looked weaker yesterday, confirmed its reversal top pattern 2 weeks ago. Now, a test of the underlying 50-DMA seems more likely.
Yields softened, gold rallied and VIX (the volatility index) awoke from its all-time low made early in the session.
The caveat is volume. Our bison in the photo look ready to stampede. Yet without volume, today’s selloff could be like stampeding on carpet. Bulls might get a sprain, but are less likely to break bones.
Speaking of livestock, on November 10th in my Daily called “This Bull Survives the Harshest Environment” I wrote: “As for Livestock futures, the ETF COW (appropriately labeled) took a second nonconsecutive trip into an unconfirmed recovery phase today. COW has been in a downtrend since the peak price in 2008. Therefore, if the phase confirms tomorrow, the probability of follow through to the upside is high.”
Closing price in COW 11/11/16 $19.37. Today, $22.45. That’s a gain of over 15%.
How’s that for a vibrant and healthy herd?
S&P 500 (SPY) 224.50 now pivotal with over 227 better and 222 support
Russell 2000 (IWM) 134-134.50 pivotal support to watch.
Dow (DIA) 200 to clear 198 now pivotal support to hold
Nasdaq (QQQ) After new highs yesterday, now a potential topping pattern with support down around 118
KRE (Regional Banks) Broke 56.00 now pivotal
SMH (Semiconductors) New highs and then smack down. Not good
IYT (Transportation) A huge correction would bring this down to 154. Over 166 better
IBB (Biotechnology) Unless this clears 275, could see move to 240
XRT (Retail) Unconfirmed warning phase with 44.70 pivotal
IYR (Real Estate) This looks weak
GLD (Gold Trust) 108.60 a good pivotal area
SLV (Silver) 15.30 resistance to clear
GDX (Gold Miners) Like to see it close out the year over 19.82
USO (US Oil Fund) Could see a correction as it failed to hold over 11.80
TAN (Solar Energy) Hard to believe how ugly this is
TLT (iShares 20+ Year Treasuries) 118.50 now pivotal
UUP (Dollar Bull) Runaway gap if holds over 26.50