Is the Market a Bomb Held Together by Ribbon?

August 16, 2016

Mish's Daily

By Mish Schneider


Victoria De Almeida Artist

A statement Frida Kahlo rejected, her work was described by Andre Breton (Surrealist) in 1938 as a “ribbon around a bomb.”

As this is the Chinese Year of the Monkey, this painting reminds me that the market may have tied a ribbon around a potential bomb. The monkeys, both smart and mischievous, represent the on again off again debate about whether or not interest rates will rise or remain close to or at zero.

Some say that the ribbon around the market bomb has been and still is the liquidity the Federal Reserve and Central Banks have injected since 2008. Once the ribbon is untied, lots of very smart people expect nuclear fallout.

Kahlo did not see herself as a surrealistic painter. She argued her work reflected more of her reality than her dreams.

Is this market rally steeped in reality or surrealism? If the Federal Reserve and Central Banks are the market monkeys, seems we will know soon enough just how smart or mischievous they really are.

Will they, should they untie the ribbon?

Yesterday I wrote, “the TLTs daily chart shows it sitting close to a phase change to warning after one failed attempt in April and then another failed attempt in May. Since then, the 50 daily moving average has risen in slope and now acts as a line in the sand.”

Headlines today read, “Two Fed Rate Hikes ‘Conceivable’ in 2016” according to Atlanta Federal Reserve Bank President Dennis Lockhart. NY Fed President Dudley echoed those words when he intimated that they might raise rates as soon as the September policy meeting.

As technicals often precede fundamentals, the channel top on TLTs monthly chart and today’s drop in price close to the 50 daily moving average certainly point in that direction.

The Modern Family held tight regardless. And, it should continue to do so if indeed the U.S. real economy is improving. With the Russell 2000 (IWM), Retail (XRT), Transportation (IYT), and Regional Banks (KRE), we have four reliable indicators to verify if the Fed is on the right track or not.

The super bearish billionaires live in the reality where the Fed raises and the market collapses. But remember, last week we called upon the Patron Saints. In turn, the bull knocked out the matador.

So isn’t it possible that the Modern Family lives in a dream where the sectors hold up, the Fed raises the rates, and with the ribbon of ridiculously low interest rates removed, the market nevertheless confidently keeps it together?

S&P 500 (SPY) Held the 10 DMA and could be construed as a reversal. Only, the volume was about half the average.

Russell 2000 (IWM) 121.95 the 10 DMA support. So although it didn’t clear last August highs, it has the chance of refueling if holds above 120

Dow (DIA) 185 support with the 10 DMA just above there

Nasdaq (QQQ) 116.50 support to defend.

XLF (Financials) January high of 24.27. 23.70 area is now pivotal support. Looks good here

KRE (Regional Banks) 42.00 big resistance with 40.75 nearest support

SMH (Semiconductors) So Semi’s follow up a new high close with an inside day. Hardly catastrophic

IYT (Transportation) If can get back over 142-way better

IBB (Biotechnology) Weakest which is no surprise as the market doubters came out

XRT (Retail) 46.50 big resistance. You might want to read last night’s daily you can find in the archives

IYR (Real Estate) The reversal pattern from recent highs working with 82.35 support

GLD (Gold Trust) So far all its doing is trading within the range of last week

SLV (Silver) 18.90 a good place to finally clear once and for all

GDX (Gold Miners) Seems a bit tired and that’s ok

USO (US Oil Fund) 10.85-11.00 a wall of resistance-it got close. Now, a move over 11.45 would be exciting

XOP (Oil and Gas Exploration) Like it

UNG (US NatGas Fund) Subscribers: Inside day. Sticking to the plan in this one

TAN (Guggenheim Solar Energy) Watching the 50 DMA

TLT (iShares 20+ Year Treasuries) 138.25 the 50 DMA which it’s been above since June 1.

UUP (Dollar Bull) Wow-so maybe this weakness also helps the Fed case

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