August 4, 2015
Mish's Daily
By Mish Schneider
According to Zhougong’s Dream Dictionary, a popular book in China, when one dreams of an octopus with all tentacles stretched out in all directions, it indicates that the dreamer may fall into a lot of troubles in personal life and work.
My research led me here when I googled China and Octopus in the same sentence. I put both pronouns in the same sentence because one cannot discount the relationship of the Chinese market and its grandiose manipulators with the US market’s current floundering (yes, another fish) to figure out what the market’s next direction is.
FXI the Chinese Large-Cap ETF, is a decent gauge. After it peaked in late April, when reports surfaced about Chinese market manipulation, the sell off to the most recent lows posted in early July (38.88) was swift and dramatic. With further manipulation, after making that low, FXI gapped higher and as of Monday August 3rd, is defending that low with 40.00 pivotal.
The implications of a skittish Chinese Market include low commodity prices for starters, accompanied by a substantial lack of investor confidence, which is where the US repercussions come in.
As with Zhougong’s Dream Dictionary, we are not merely dreaming about tentacles or arms stretched in all directions, rather living and trading it as well.
Certainly, stories have emerged about major hedge funds that have taken huge losses holding long commodities positions into the recent concentrated selloff. If I were in their shoes, I would consider a diet of octopus as the Chinese interpretation of a dream where one eats an octopus is that the current trouble will pass.
For the U.S. market, I continue to use the Modern Family (IWM, XRT, IYT, KRE, SMH, IBB), to help guide both my trading dreams and realities. I use the 3 layers I wrote about last week-the 2015 trading range, the July 6-month Calendar Trading Range and the Phases.
Semiconductors, which are below both trading ranges and heading towards a death cross (when the 50 daily moving average crosses beneath the 200 DMA), have kept the lid on the rest of the family’s attempts at any sustained rallies.
Although the tentacles have helped certain instruments like Netflix for example, to maintain a mind of its own, the activities of the rest of the family do seem to work in relative concert.
Biotechnology is the only family member still in a bullish phase. Unless you are an amazing stock picker who understands risk/reward and what tempts an octopus’ arm to swim towards and devour a tasty morsel, best to keep note of how the weakest and strongest links of the family do over the next week and trade accordingly.
If Semis recover, that will help a lot. If Biotechs falter, expect more troubling dreams and realities.
S&P 500 (SPY) confirmed warning phase with 210 first hurdle and with an inside day, under 208.65 more trouble.
Russell 2000 (IWM) 124-125 resistance with 121.24 key support
Dow (DIA) 174.44 is the July 6-month calendar range low to hold.
Nasdaq (QQQ) The 50 DMA 109.86 now support with110.86 area the nearest support since it’s the July 6-month calendar range high.
XLF (Financials) 25.35 next point to clear with 24.90 point to hold
KRE (Regional Banks) Traded over 43.90 intraday and almost got interesting. Could also still be creating a bear flag against the 50 DMA
SMH (Semiconductors) Some support around 51.00. Otherwise, could make new lows
IYT (Transportation) Performing well and now must hold over 148.40
IBB (Biotechnology) Green but not exciting
XRT (Retail) Inside day like over 99 and needs to hold 96.50
IYR (Real Estate) Needs to hold 74.00.
XHB (US HomeBuilders) 36.62 support with an inside day
GLD (Gold Trust) Needs a sharp reversal pattern to avoid lower prices.
USO (US Oil Fund) Inside day at the new 2015 lows
UNG (US NatGas Fund) Keeping eyes on with higher lows since April. A move over 13.75 and hold of 13.00 are good parameters to watch
TAN (Guggenheim Solar Energy) Tweeted about First Solar for days-reported really well.
TLT (iShares 20+ Year Treasuries) 120.57 major support and 124.40 the 200 DMA resistance
UUP (Dollar Bull) Quite firm
FXI (China Large Cap Fund) 40.00 pivotal
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