The Market’s Chinese Brown Earth Dog Gets Wet

October 17, 2018

Mish's Daily

By Mish Schneider


Some of you may recall that I covered the Chinese Astrological sign for this year in February.

The prediction for the market said that the cycle of fire elements ended in 2017.

“The 2018 Year of Dog represents Grave of Fire, which means the optimism of fire is going down and the pessimism of water will come up.

The fire element will not return until 2025.

Therefore, the general economic atmosphere is entering a bearish cycle and the economic pace will be gloomy and slowing down in 2018.

The Dog in the Chinese calendar represents October which is end of autumn and beginning of winter, with fire going away and water coming up to generate fear.” Raymond Lo

Whether you hold credence or not into astrological predictions, the brown earth dog has surely taken a bath this month.

How will we know if the prediction is correct or not and what should you do next?

Let’s put some technicals on the prediction.

Last week, Transportation IYT broke the 50-week moving average.

Furthermore, we continue to watch the trilogy of factors-oil, interest rates and the dollar.

Today, the price of oil declined. That did not help however, IYT stay above the 50-WMA at 192.90. At least not so far.

The Fed, with some discord, released the minutes stating that the plan is to keep the course when it comes to rising rates.

The US dollar gained.

That puts pressure on the cost of goods, or a double whammy with higher rates.

It also, for the time being, subdues rallies in commodities.

The Russell 2000 IWM tested last Friday’s high 155.76 and held.

Interestingly, it also had an inside day (traded within yesterday’s trading range).

The 159.45 or 50-WMA level remains key. Especially by the end of the week.

Same with Transportation IYT. That must hold 192.90 or its 50-WMA.

SPY has big resistance at around 282. And NASDAQ will look a whole lot better if closes the week out above 178.70.

I would love to believe that the market will ignore the Chinese prophecy.

Nevertheless, as much fun as it is to research, the bottom line is that we prefer to wait for the end of the week and the aforementioned levels to clear or not.

If they do, the bulls may not get that fire back, but at least they can count on a clean and dry dog for the time being.

If the levels do not clear, then prepare for the Grave of Fire.

S&P 500 (SPY) 282.20-282.90 the resistance levels. 276 the nearest support

Russell 2000 (IWM) Inside day. 155.76 is the logical pivotal support with 159.45 the logical pivotal resistance

Dow (DIA) 260 its best resistance. 254.50 nearest support

Nasdaq (QQQ) This must clear 178.70 to sustain the rally and hold 174.86 nearest support

KRE (Regional Banks) Sideways action which is not a reason to be bullish

SMH (Semiconductors) 100 pivotal resistance. 98.79 nearest support to close above

IYT (Transportation) I’m going to watch 192.90 very carefully this week

IBB (Biotechnology) Inside day. 115.70 resistance to clear and 111 the best underlying support to hold

XRT (Retail) Quite a disappointment as it could not hold over 47.75 and headed back into an unconfirmed distribution phase. Still holding the 50-WMA though at 47.07-key

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