Abracadabra: The Market Trapdoors the Bears

October 16, 2018

Mish's Daily

By Mish Schneider

Little Nemo Winsor McCay

But, was it really hocus pocus?

After all, the S&P 500 held the 50-week moving average as did the Retail Sector XRT, and Biotechnology IBB.

Furthermore, NASDAQ QQQ put in a reversal bottom.

And the Russell 2000 IWM, held the monthly channel.

Moreover, IWM and SPY both had inside days.

Statistically, the way the range breaks yields follow-through.

Yesterday I wrote, “With the multi-month low and today’s inside day, a move over 155.76 could take IWM up to test 159.40.”

Today’s high 158.86.

Nevertheless, besides rotation into XRT and IBB, Granny and Big Brother, there was another auspicious member of the Family today.

Why are we back to our major focus on Transportation IYT?

Transportation IYT broke the 50-week moving average last week.

The trilogy of factors we have been watching-oil, interest rates and the dollar, help explain why that happened.

First off, the price of oil is rising.

That impacts everything. For IYT, it’s the cost of shipping goods, which in turn affects consumer’s pocketbooks.

The interest rates also have an impact.

The Federal Reserve Bank of New York put out a statement today on the economy.

In a nutshell, real consumer spending is firm, business equipment spending is strong, housing activity is soft, payroll growth is below expectations and core inflation has met their objectives.

They even made a statement about oil. “Oil prices moved higher to around their highest levels since late 2014.”

This could mean a December raise is less likely. However, I would not expect to see an accomodative stance anytime soon.

The US dollar held onto its 50-Daily moving average. Should it fail to hold 25.25 UUP, then that will help oil and for certain, keep the Fed and the rates at status quo.

Back to IWM, IYT and SPY.

IWM came close to the 50-WMA. Not enough.

IYT will have to hold 192.90 or its 50-WMA.

SPY, albeit in better shape, comes into big resistance another $2-3 higher.

That means should IWM stop rallying, IYT fail to hold the 50-WMA and the SPY fails to hold today’s lows or 276.07, our magician’s next trick will be bearish. Til then, abracadabra!

Last night I wrote about the likelihood that Retail XRT would see a move up today. The rotation of money, the macro picture, the historical low ratio between equities and stocks, plus the art of stock picking are some of the areas I specialize in. Tonight, I teach you how I have simplified the process by using a combination of fundamental and technical analysis for swing trading.

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S&P 500 (SPY) 282.20-282.90 the resistance levels. 276 the nearest support.

Russell 2000 (IWM) 155.76 is the logical pivotal support with 159.40 the logical pivotal resistance

Dow (DIA) 260 its best resistance. 254.50 nearest support

Nasdaq (QQQ) After a bona fide reversal pattern, this will have to clear 178.70 to sustain the rally

KRE (Regional Banks) Still not much to see here

SMH (Semiconductors) 100 pivotal number. Resistance up at 105.

IYT (Transportation) I’m going to watch 192.90 very carefully this week

IBB (Biotechnology) 115.70 resistance to clear and 111 the best underlying support to hold

XRT (Retail) It cleared over 47.75. Did you consider that active long-looking for a quick pop? Furthest from resistance so still ok to hold but would keep a no loss stop

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