August 3, 2015
By Mish Schneider
An octopus has eight flexible arms which can bend in all directions, vary in stiffness and elongate rapidly. However, the flexibility of the octopus’ arms makes motor control much more difficult.
When an octopus needs to gain momentum, all arms integrate more readily which helps move the octopus along in a direction. However, the octopus can also claim that their arms have minds of their own. Hence, if an octopus sees a tasty sea morsel and decides to eat it, it is the brain of its arm and not the brain inside its skull that snatches for the treat.
The market behaves as such. Not since February of this year have we really seen all arms (indices) integrate to gain momentum with all rising at the same time.
Since then, the 8 arms have mainly moved independently. We’ve seen the market reach for tasty morsels with NASDAQ, Biotechnology and the financials in bullish phases.
Nevertheless with the Dow falling and Transportation until recently in a bearish phase plus Semiconductors heading in that direction as well, the market’s arms, having minds of their own, represent the increasing divergences of the market sectors and indices.
If each flexible arm represents the 4 indices and top 4 sectors, we can see why a market bending in all directions with varying degrees of stiffness, elongating and shortening rapidly makes interpreting and predicting the next moves much more difficult.
If the 2015 market possesses the ability to move in all directions at once, no surprise that it easily loses its ability to move and sustain that move in one particular direction for too long.
Octopuses lack a spine, which allows them to slide through nearly impossible openings. They prefer to glide through the water since if they are forced to swim, they tire easily.
The market currently lacks a spine as well, occasionally slipping through the impossible in the face of negative factors-low commodity prices, China and Greece woes, questions on how much control the Federal Reserve has, etc.
As a result of consistently trying to trade its way through impossible holes, the market has been forced to swim rather than glide and now looks tired.
Yet, with the prevailing 2015 and July 6-month calendar trading ranges intact, which have consistently yielded a successful contrarian philosophy-sell strength, buy weakness-we might still sing “I'd like to be under the sea; In an octopus's garden in the shade. He'd let us in, knows where we've been; In his octopus's garden in the shade.”
S&P 500 (SPY) Back to an unconfirmed warning phase wit 201 now the overhead 50 DMA to get back above
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. Wonder if it will see the 200 DMA overhead any time soon?
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.
Volatility Index (VIX) This is down. How weird is that?
XLF (Financials) 25.35 next point to clear with 24.90 point to hold
KRE (Regional Banks) Over 43.90 gets interesting otherwise, all last week did was create a bear flag against the 50 DMA
SMH (Semiconductors) They look weak except they did close above the July 6-month calendar range low.
IYT (Transportation) Performed really well last week and now must hold over 148.40
IBB (Biotechnology) Although it’s holding the 50 DMA, the test and bounce from last week still weakening.
XRT (Retail) Couldnt hold 97.52 the July range low. The 200 DMA is looming below
IYR (Real Estate) Could take some leadership if it holds 74.00.
XHB (US HomeBuilders) 36.62 support
GLD (Gold Trust) Needs a sharp reversal pattern to avoid lower prices.
USO (US Oil Fund) New 2015 lows
TAN (Guggenheim Solar Energy) I am waiting for a clean reversal pattern which means has to make new lows first
TLT (iShares 20+ Year Treasuries) 120.57 major support and 124.40 the 200 DMA resistance
UUP (Dollar Bull) Looks firm
IFN (India Fund) Looks good with an inside day
FXI (China Large Cap Fund) 40.00 key to get back above
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