January 6, 2017
By Mish Schneider
A theme for 2017 that keeps playing in my head is “Uncertainty is the New Sure Thing.”
On December 22, I wrote a blog using that theme as a title. So, with this overriding sentiment in mind, I am happy to present Mish’s 2017 Picks.
To organize the selections, I begin with the macro picture, particularly the four indices and the sectors in the Modern Family.
For 2017, I use 7-year and 2-year trends as the major focus.
Although the S&P 500 bottomed in price in 2009, by 2011, the S&P 500 confirmed the start of much bigger 7-year bull trend when it cleared the 80-month moving average.
Therefore, 2017, six years later, I thought it appropriate to take a fresh look at those indices and instruments that have reversed, are about to reverse or poised to continue their trends.
Furthermore, I categorize the specific stock picks among four different criteria.
But first, why do I find the 23-month and 80-month moving averages so relevant?
Moving averages come in various timeframes. To smooth out the day-to-day or week-to-week price fluctuations and noise, the 23-month and 80-month offer a much longer range view.
The 80-month MA is in alignment with the long-term business cycle of about 7-8 years. A business cycle is basically defined in terms of periods of recession and expansion.
The 23-month works well to determine a countertrend within the bigger business cycle. A countertrend move or correction against a longer-term cycle can happen for approximately 2 years before we see the longer-term trend continuation.
Case in point, when the S&P bottomed in 2009, it took 2-years for the end of the bear phase and the start of the longer-term bull trend. Then, in 2015 the S&P 500 broke the 23-month moving average. A decent correction ensued.
Now, nearly two years later, the S&P resumes the rally.
The chart illustrates the S&P 500 monthly moving averages. Each bar represents one whole month of price action. The thinner, solid line is the 23-month MA. The thicker, dotted line the 80-monthy MA.
Both moving averages work equally well with any instrument provided there is enough back data to plot prices for over 2 and 7 years.
What might happen at the end of the 7-8-year business cycle or as we approach 2017-2018?
The four categories of specific picks are:
To more precisely time our way into any of these picks, we use the daily charts and shorter-term phase changes.
We layer in the 30-minute charts and the opening ranges on any given day. That allows us to manage trades with appropriate stop-losses and profit taking parameters.
I hope that in this year of uncertainty, this guide helps narrow your focus and assures you a prosperous year!
S&P 500 (SPY) Not quite an all-time high close (that was December) but it makes 227 pivotal area. Then, 225.50 and above 228.34 the high.
Russell 2000 (IWM) Closed red with an inside day to end the week. 135.50-136 should hold now if good. Over 138 better
Dow (DIA) 200 to clear 198.00 should hold now if good.
Nasdaq (QQQ) New all-time high close. 120.00 support and 121 pivotal
KRE (Regional Banks) Inside day under the fast-moving average. That makes 55.90 pivotal, 56.50 point to clear and 54.25 support that should hold
SMH (Semiconductors) 70.40 support at the 50-DMA and 72.50 level pivotal
IYT (Transportation) Must clear 165 and hold 162 or trouble.
IBB (Biotechnology) Seems this sector found the right pill to take. Resurrected as long as it holds above 275.
XRT (Retail) Inside day and closed near in an unconfirmed distribution phase. Reminds me of a skeleton in a closet. Out of sight until it’s not.
IYR (Real Estate) Better that it closed over 78. Now, 79 is the last swing high from back in October
GLD (Gold Trust) Resistance at 114.40 and held 111.50 support. A start over 112.05 Monday is good.
SLV (Silver) Like to see this fill a gap to 15.87 first and hold 15.50
GDX (Gold Miners) Held 22.00 support. Yet, I feel more neutral right here
USO (US Oil Fund) 12.00 is big resistance and 10.80 big support
TAN (Solar Energy) I never take my eyes away but at this point, not inspired to buy
TLT (iShares 20+ Year Treasuries) 119.50 is the place to hold for this to remain in the monthly channel. Closed above the 200-week MA.
UUP (Dollar Bull) 26.45 is a clear pivotal number