September 12, 2018
By Mish Schneider
Last night, we looked at the sardonic bull wearing a crown with 5 distinct warning signals.
To review, the first one was certainly Semiconductors (SMH.) Today, not only did SMH confirm the warning phase, it also broke the 200 DMA, hence, entered an unconfirmed distribution phase.
Furthermore, should SMH’s price remain below 103.75 level by the end of the week, it will close under the 50-week MA for the first time since May 2016.
The second warning concerned the four indices inability to clear their overhead fast-moving averages.
Today, the Dow (DIA) did clear the fast, overhead MA. It even traded up to 261.77, the recent high., It closed slightly green.
Meanwhile, the S&P 500, with a late day rally, tried to clear the overhead fast MA. It could not close above the MA, though did manage to close a touch green.
Neither the Russell’s not NASDAQ could bounce enough to clear their overhead resistance levels. Both closed red.
Yet, please note that QQQ had an inside trading day. That pause in the action, could turn out to be very informative, depending upon the way the trading range reconciles.
The 3rd warning was about the rising interest rates and firming dollar.
Today, rates weakened a little bit. The dollar declined with UUP (the dollar bull ETF) entering an unconfirmed warning phase.
The 4th warning was the rise of crude oil prices. Today, oil prices rose further.
Finally, our 5th warning represented emerging markets. Today, EEM (the ETF) rallied off them multi-year low it made yesterday. It also bounced off a key monthly moving average.
That means it must hold this week’s low, which could turn out a low risk buy opportunity. More importantly, if emerging markets bottomed, then the conversation turns back to the subject of tonight’s Daily-
Can the metals rise from the grave?
It is important to note when 2 of the 5 warnings shift to more positive.
What that could imply, is that the money is rotating out of technology, and the financials and looking for fresh opportunities in areas that were beat up.
With gold and metal miners, today’s opportunity came about because the dollar declined, rates eased a bit and the emerging markets stopped their bleed.
GLD the ETF, in a steep bear phase, did what the IWM and QQQ could not do-it cleared the fast-moving average.
XME, the ETF for metal miners (steel, copper) retraced right down to its key monthly MA and bounced.
EEM (emerging markets ETF), also tested a key monthly moving average and put in a (what we call) 2-day brick wall bottom.
For us, these retracements down to long-term MAs are super exciting.
The monthly moving average we like to use, relates to identifying turns in nearly 7-year business cycles.
That applies to XME and EEM.
XME spent nearly 7 years under the monthly MA, clearing it in January 2018. It is literally dancing on that line, with one more push up, reason to confirm the bleed from January’s peak is over.
EEM is not as clean. Between the years 2011 and 2015, EEM traded in a range between 35.00 and 45.00. That encompassed the monthly MA, making it difficult to discern its next macro move.
In mid-2017, EEM cleared that average. After a big run up until 2018, it has sold off, now testing that level to the tick.
The exception is GLD. Although it tested the monthly MA in 2016 and early in 2018, it has not cleared it since 2013.
So, gold bulls, no need to worry about missing that boat. When/if GLD takes out the monthly MA, not only will buyers have a tangible signal, but it might also be the time that all all commodities turn up.
As we look with our gold skeletons into the crystal ball, we continue to anticipate a major shift in the works.
S&P 500 (SPY) 286.50 support to hold (or we will see 283 next) with a move back over 289.50 better. I’d like to see this move up and close above the fast MA as this rally is still pretty shallow.
Russell 2000 (IWM) 170 big support to hold on a closing basis. Now, if it has anything, it must clear/close over 172.
Dow (DIA) 259-260-a clear or break will be telling
Nasdaq (QQQ) Inside day. 184.00 is that fast moving average it must clear to keep going. Otherwise, if fails 180 not so healthy
KRE (Regional Banks) Unconfirmed warning phase under the 50 DMA at 62.44
SMH (Semiconductors) Unconfirmed distribution phase. 103.75 the big swing area for the end of this week
IYT (Transportation) 206.90 the old high pivotal support. Some caution now as this made a new high by only one tick. Under 207.22 could see some selling
IBB (Biotechnology) 115-116 next area of support and 120 now becomes the pivotal resistance
XRT (Retail) 50.44 is the 50 DMA. Good mover today-back over 52.00. If holds looking at 56 area next resistance