Trading is Not Like Playing Slots

May 23, 2018

Mish's Daily

By Mish Schneider


Trading is not like playing the slots. Oh sure, it can be if you have nothing strategic to fall back on.

That’s why some call the slots, “one-arm bandits.” They can take your money fast!

Everyone looks for ways to beat the odds.

For example, in February, Business Insider posted an article with Feng Shui forecasts for 2018, this Year of the Brown Earth Dog.

The CLSA Feng Shui Index stated that investors should stick with pharma and consumer goods, as the Earth Dog sees strong gains in wood-related industries overall.

Looking at the ETF for Lumber, WOOD, 92.90 is the all-time high made on 4/18, with Tuesday’s high 92.86.

Not a bad run.

But then today, WOOD gapped lower (down to 81.34) leaving new high buyers petrified, if you will.

On the flip side, CLSA predicts that telecommunications, internet, technology and utilities will perform well, but casinos and transportation won't get a leg up until October.

CLSA goes on to say, "Investors who expect decent returns from banking and financials are definitely barking up the wrong tree this year," says CLSA.

Then, if one digs further, after all the predictions, they have a disclaimer-

“CLSA has always maintained that index is just for entertainment.”

Just like slots.

As this week we try to get a handle on the market’s next direction, should we trust Arhats, Feng Shui experts, talking heads, or none of the above?

If you answered “none of the above,” I hope you have a system.

I also hope you’re not thinking you don’t need one.

And maybe, you read this Daily to gain insight into the Modern Economic Family, or best indicator I know for relaying the Macro picture.

Regardless, the information that the Family currently shares with us is one of a more Bullish sentiment.

Five of the six of them, (the Russell 2000, Retail, Regional Banks, Semiconductors, and Transportation), are in bullish phases.

Biotechnology is in a recovery phase.

So, when I write a statement such as, “Transportation (IYT) broke the critical level of support at 195,” that represents a more micro look within a macro trend.

Considering CLSA says that, “Transportation won't get a leg up until October,” what does a gap down below 195, while maintaining a bullish phase mean for right now?

When an instrument clears a key resistance point, as IYT did over 195, and then fails it with a substantial gap lower, the first place I look is at the Daily charts.

I check the prior day’s low (PDL) in hopes that that gap is filled by the end of the day.

With PDL at 193.58, IYT just missed filling it. (Today’s high 193.55).

That makes today’s low key for tomorrow’s trading. Under 191.81, I would expect a test of the 50 DMA just beneath.

It also makes 195 resistance, which if clears back over, a signal of health.

Therefore, before you sit down and pull the legacy lever, watch key levels (micro and macro), and be mindful of the phases!

S&P 500 (SPY) 270 pivotal. 272 nearest support to hold. Thru 274 looks a lot better

Russell 2000 (IWM) As per the commentary, IWM did gap lower, but filled the gap early on. Therefore, that negates the potential reversal candle and probably means the eventual move to target (160) back on. Unless, it breaks 160.90.

Dow (DIA) 245-250 trading range

Nasdaq (QQQ) 166.50 held and by the end of the day, it took out 169.50, the pivotal resistance. That will put FANG back in focus

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