August 16, 2015
By Mish Schneider
Are you a Bull or a Bear or neither and wondering what a bear or bull even is?
I drew a box around the DIA chart from the 2015 highs to lows. Then, I looked at the price action and where prices held longest or where the “herd” has gathered. In other words, where the most price consolidation exists, I deduced, is where the herd prefers to gather most.
Perhaps you’re a Sheep?
I haven’t forgotten about sheep and the Chinese 2015 Astrological Sign for The Year of the Sheep. To refresh the salient points:
Sheep are peaceful animals, easily led by their Shepherd. They prefer to stay in a herd, and nearly all of the time, will not stray outside of their pasture.
Oh sure, there are other factors to consider besides the 2015 Trading Range.
Why Focus on the Dow?
It is the only index in a bearish phase.
What strikes me though, as I look in the most objective way possible at this “box”, is that the bulk of the price action for this year in DIA occurred at higher levels.
The longest period of consolidation happened between March and mid-May. We can use a range of 175.50 to 181.00. The two times the price fell hard beneath that range, the duration of how long the price remained near those spikes lower was short-real short. The “sweet spot” or where the herd likes to graze most, is at higher levels.
Even last week on August 12th, the spike down to 171.40 was fast, furious and over quick.
I took the path of a box in order to wrap my head around the positives in the market with the Dow in a bearish phase. This divergence is atypical and historical at once.
Why Focus On NASDAQ and the Financials?
I may like Sheep, but NASDAQ loves Bulls! Not since early July has QQQs closed beneath the 50 DMA.
The Financial Sector including my favorite Prodigal Son Regional Banks, is solid. In fact, if you look at a chart of the QQQs and of XLF, The S&P Financial Fund, since the lows made in January and February respectively, each subsequent low posted has been substantially higher.
How about the Homebuilders ETF (XHB)?
Refusing to be boxed-in, (XHB) closed out the week not only on new 2015 highs but also on new multiyear highs, prices not seen since 2007.
Last week I mused about Existentialism, particularly the notion of absurdity where our human instinct to seek order and meaning is frustrated by the world’s refusal to be either orderly or meaningful.
Does the Dow need to fire its Shepherd?
In Darwinist Theory, has the Dow become the loser as only the strong survive?
Is the Dow taking cues from the Old Testament as a sacrificial lamb?
Or maybe, given the narrowing pool of good investments, the Dow is a Trojan horse warning the strong that “something this way comes?”
To all you Bulls, Bears and Sheep, in the words of Henry Miller:
“The world is not to be put in order. The world is order. It is for us to put ourselves in unison with this order.”
Good luck with that!
For specific levels (and hopefully some clarity) see below
S&P 500 (SPY) Inside day on Friday-no surprise. Over 209.50 clears the 50 DMA with 207.71 the 200 DMA below
Russell 2000 (IWM) 120 truly pivotal and this closed just above it
Dow (DIA) 174.44 pivotal. With 177 above probably a good place to go short should it get there
Nasdaq (QQQ) 111-109 a good range to watch break one way or the other
XLF (Financials) 25.00 now key support to hold
KRE (Regional Banks) 43.30 some support, 42.85 better and overhead, 43.60 next level of resistance with more at 44.20
SMH (Semiconductors) Made a new 2015 low and adding to the woes
IYT (Transportation) The performance last week looks very positive especially back over 150
IBB (Biotechnology) Over 367 would be a good start. Otherwise, a break of last week’s low troubling
XRT (Retail) 96.93 the 200 DMA to clear. I touched and closed just shy of that area.
IYR (Real Estate) Been pointing out basing pattern for last 2 weeks. Another reason for bulls to cheer
GLD (Gold Trust) Maybe it’s bottomed, but if rates do firm, wonder if this is where one should have money.
SLV (Silver) Failed the 50 DMA which sort of answers my question about GLD
GDX (Gold Miners) Now that it filled a gap, buying dips with risk to around 13.99 makes sense
USO (US Oil Fund) Not done yet but that won’t last forever
XLE (Energy) support at 68.60-still looks good
XOP (Oil and Gas Exploration) This look okay too
UNG (US NatGas Fund) Inside day so not toast just yet
TAN (Guggenheim Solar Energy) Longer term love solar. Right now, not sure if it’s bottoming or not
TLT (iShares 20+ Year Treasuries) A reason for a lot of the divergence and confusion
FXI (China Large Cap Fund) 40.00 pivotal
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