One Market-Split Brain

February 16, 2017

Mish's Daily

By Mish Schneider

mdaily20170217An inferior view of your brain might look similar.

The frontal lobe (on top) carries out higher mental processes such as thinking, decision making and planning.

You can see the frontal lobe is currently torn between a seller’s versus buyer’s mentality concerning the stock market.

The cerebellum (on the bottom) controls balance and coordination of our muscles and the body.

You can see the brain’s struggle to maintain equilibrium with the market currently frothy, but not quite signaling the top.

This week, all four indices made new all-time highs.

Many of the major sectors and groups did as well including Transportation, Semiconductors, Regional Banks, and the Financials.

Other major sectors rallied, but sat far away from new all-time highs and in some cases fairly far from 2017 highs.

Yesterday, for a brief moment, the Modern Family looked like sated fire roosters and hens.

Today, the nagging disparity returns and oversexed roosters appear tired.

Given the possible but certainly not confirmed reversal top, are our split brains overreacting?

By the end of the day, the Dow closed up by 7 cents. The S&P 500 came one tick from having an inside day (traded inside Wednesday’s trading range.)

The Russell 2000 and NASDAQ 100 made new all-time highs early in the session. Neither closed below Wednesday’s low leaving the scenario of a reversal top more dubious than obvious.

Should Friday see a close under 138 in IWM and under 128.37 in QQQs, then perhaps we can use the left side of our frontal lobe to plan for more selling.

If both respect those lows, then the right side of our frontal lobes should find balance from our cerebellum and stop overthinking. Incidentally, the major flaw of the fire rooster is exactly that. Overthinking.

However, one should not lose sight of three other members of the Modern Family.

Transportation, after making new all-time highs failed to hold over the 171.15 inflection point. That means further selling on Friday could start a domino effect.

Retail, XRT, gave up the entire week’s gains in today’s trading session. That does not bode well if the deterioration continues.

Biotechnology, IBB, a beacon of hope, lost 1% today. However, unlike Retail, IBB holds support over 287, an inflection point.

So while left-sided brain traders tend to be more logical, strategic and rational, currently those attributes embody a fair share of fear.

The right-sided or intuitive traders may have the advantage as they currently possess a more hopeful attitude.

“Let not the right side of your brain know what the left side doeth.” George Bernard Shaw

S&P 500 (SPY) Made a new high by one tick and then closed slightly lower. 240 not out of the question as a target should it hold over 231 by the end of the month.

Russell 2000 (IWM) Looks more like a digestion day

Dow (DIA) Doji day at new highs

Nasdaq (QQQ) Doji day at new highs and worked off some of the overbought readings

KRE (Regional Banks) Digestion near new highs

SMH (Semiconductors) Back to her wonder woman status with new highs

IYT (Transportation) 171.15 now pivotal number to clear back through

IBB (Biotechnology) 285-287 now pivotal support. Better volume.

XRT (Retail) 43.75 pivotal. 44.55 resistance. 43.35 support

IYR (Real Estate) 79.00 the 200 DMA

GLD (Gold Trust) 116.25 max risk with 117.75 some minor support to hold

SLV (Silver) 16.90-17.00 key support

GDX (Gold Miners) Unconfirmed accumulation phase

USO (US Oil Fund) Sideways action until cash takes out 54.00-then watch it fly

TAN (Solar Energy) Now should hold 18.00

TLT (iShares 20+ Year Treasuries) 118 next test and if clears back over 120 not so bad

UUP (Dollar Bull) 25.80 support 26.20 resistance

FXI (China) Inside day. Big resistance at 39.25 area

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