December 22, 2016
By Mish Schneider
Perhaps the Gremlin at 20,000 in the Dow resembles the first angel. (Please regard the comparison in the spirit it is meant.)
Not necessarily warnings of “hail and fire mixed with blood…hurled down to earth,” as prophesied in the Revelations. Nevertheless, for poetic license, a biblical reference this time of year comes in handy.
After all, the end of an age has come to pass. For 2017, the typical avenues of predictability are out the window. And, the angel does blow a TRUMPet.
I just completed a list of stocks and ETFs to watch in 2017 for both longs and shorts.
In the past, I’ve always had a good idea of megatrends to follow that employ logical fundamental analysis.
For instance, megatrends such as the expansion of social media, online shopping, smart TVs, and video gaming are no-brainers.
All the above should continue expanding. However, beyond mankind’s use of technology, making global economic and foreign policy predictions for 2017 got a whole lot harder.
Does that make uncertainty the new megatrend?
Today, the market backed off from 20,000 in the Dow while the other indices fell even harder. Having written extensively about channel resistance, chart and volume patterns and other technical indicators, at least today’s retreat turned out to be relatively predictable. (And not in the biblical sense.)
Therefore, I continue to find the most value in using technical analysis to assess next year’s trends.
I look mainly for instruments that have reversed a 5-year trend or are about to. Furthermore, I note those instruments that should continue their existing 5-year trend.
For fun, I analyze the Modern Family and the other 3 indices to decipher if they 1. Have reversed a 5-year trend, 2. Are about to reverse a 5-year trend or are 3. Poised to continue a 5-year trend.
Here’s the verdict:
The Russell 2000: Choice 3 if holds 129. However, caveat that it must also clear above 139. NASDAQ 100: Choice 3 if holds 115.75. The Dow: Choice 3 if holds 184. The S&P 500: Choice 3 if holds 214.
Not so scary, right?
Retail (XRT): Choice 2, especially if it breaks further under 37.00. Biotechnology (IBB): Choice 1. Topped out at 305. Under 240 we look at 203 area.
Transportation (IYT): Less clear between Choice 2 and 3. A move over 145 seals the fate of Choice 2, over 168 more in line with Choice 3. Regional Banks (KRE): Choice 3 providing no apocalyptic event occurs. Semiconductors (SMH): Choice 3.
The disparity among sectors becomes more disparate. For now, the indices say no fire and brimstone on the immediate horizon. Yet, Retail and Biotech-or the gauge for US economic growth and speculative interest -say otherwise.
“There is no such uncertainty as a sure thing.” Robert Burns
S&P 500 (SPY) Under 224.50 trouble and over 227 better
Russell 2000 (IWM) 134-134.50 pivotal support to watch. Back over 138 better
Dow (DIA) 200 to clear 198 to hold.
Nasdaq (QQQ) 119.65 pivotal area and today’s low
KRE (Regional Banks) Has to hold over 56.00 or expect lower levels with 54 then 52 support.
SMH (Semiconductors) Over 72.25 better
IYT (Transportation) A huge correction would bring this down to 154. If recaptures/closes 168 never mind.
IBB (Biotechnology) Unless this clears 275, could see move to 240
XRT (Retail) Broke 45.50. Now, we will see if it can hold 44.50
GLD (Gold Trust) Probably going lower
SLV (Silver) Must hold 14.85
USO (US Oil Fund) 11.73 to clear and 11.40 to hold
TLT (iShares 20+ Year Treasuries) 116.35 very big support on a monthly chart. 118.50 resistance
UUP (Dollar Bull) Runaway gap if holds over 26.50