The Present Is The Equilibrium Of The Past & The Future

June 23, 2015

Mish's Daily

By Mish Schneider


Charles de Leusse

Tuesday, we saw corporate consciousness, first by Walmart and then by Amazon, as they both announced the end of selling Confederate Flags and such from their inventory.

The distinction, on the other hand, of the stock prices of those two companies couldn’t be more glaring as what I imagine is the distinction between those celebrating the flag removal versus those criticizing it.

Amazon had a huge move higher on Tuesday, closing better than it has since April 24th and challenging the all-time highs made the same day at 452.65.

Walmart is trading near 2015 lows and at the lowest levels since 2013. I will note that Walmart is at the critical 200 week moving average support. These long term weekly moving averages are inflection points. I make no conjecture here other than the risk, either for shorts or for longs, should be clear depending upon which way the stock reconciles.

2015 Divisive Market

2015 is no stranger to this type of divisive price action, especially within various sectors and groups. This diversion has led me to watching the rotation of my so-called Modern Familythis year, (IWM, XRT, IYT, SMH, KRE, IBB), as well as evoking the Sheep imagery as the trading range 3 of the 4 indices remain inside of.

NASDAQ appears even more convincingly now as the one to watch for a break of 111.16, the intraday 2015 high, and what happens once or if it gets there. Since it’s super close, probably safe to say there’s a high probability.

Equilibrium Theory Applied to Trading

Tuesday, I did some reading on John Nash’s theory of Equilibrium. John Nash, a mathematician and subject of the film, A Beautiful Mind, recently died in a car crash.

Basically, it’s a game theory that is widely used for predicting outcomes using a set of players, a set of actions and a payoff function that represents each player’s preferences over actions or list of actions.

His theory states that no single player can obtain a higher payoff than the other opposing player given that the outcomes are equally unknown. To put this another way, those outcomes are like trying to ascertain which came first, the chicken or the egg. It’s unpredictable.

To apply this to predicting the market outcome based on what happens with Greece, the Fed raising or not raising rates, random tragic events, weather related disasters etc., is UNPREDICTABLE.

Probability

Therefore, what we have to sink our teeth into is risk/reward ratios based on probability.

Probably NASDAQ will rally over those levels, probably Amazon will make new highs, probably Walmart will sell off further, and probably the Modern Family will continue to work in concert to tell us what’s coming next.

That’s the best way I know of deciding what is investable: relationships and their probable rewards and discernable risks.

S&P 500 (SPY) Volume lighter, while this remains range bound

Russell 2000 (IWM) Quietly unstoppable and closer to but not yet overbought

Dow (DIA) Confirmed bullish phase with 180.30 support and over 182 better

Nasdaq (QQQ) Until we get a decent clearance over 111.16, lots of range bound noise

XLF (Financials) Held near the highs from last week

KRE (Regional Banks) New highs!

SMH (Semiconductors) Over 58.47 better but for now, we at least want to see this hold 57.08

IYT (Transportation) Holding onto 152 which is highly pivotal

IBB (Biotechnology) Quiet move to new highs!

XRT (Retail) Granny got her groove on-like to see this clear the 2015 highs joining Gramps

IYR (Real Estate) Buckled to the rising rates

XHB (US HomeBuilders) 36.98 is the highest weekly close since 2007- Maybe this week

GLD (Gold Trust) Typical lack of follow through type action since April

USO (US Oil Fund) Noisy until it clears 21.50 or fails 19.00-note cleared 20.45 the calendar ranges

XOP (Oil and Gas Exploration) Good reversal from Monday’s lows but not on impressive volume-worth watching however

TAN (Guggenheim Solar Energy) Inside day. If holds 42.00 good and over 43.50 even better

TLT (iShares 20+ Year Treasuries) 115.26 the 6/10 low

UUP (Dollar Bull) Back up near the 50 DMA resistance after holding the 200 DMA support

IFN (India Fund Inc.) Interesting over 27.00

GREK (Greece) If this holds now over 11.34 seems 13.00 will be the next hurdle

CORN (Corn) Looks like it wants to base-cleared the 50 DMA-first time since March if holds

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