Will the Bear Stock Market Continuará?

January 2, 2019

Mish's Daily

By Mish Schneider


In 2007, the first Continuará convention was held in Uruguay for fans of comics, role-playing games, fantasy and strategy games.

The convention lasted only four years.

The translation of Continuará is “to be continued.”

To start 2019, I choose this word and image.

What we will discover soon enough, is whether this bear market is “to be continued.”

We will also discover whether any rallies are more role-playing for the perpetual bulls or in other words, a fantasy game that can change into a sound strategy.

We ended 2018 with some trends to keep on your radar.

We also reminded you that the economic Modern Family will ultimately serve as our best indicator.

Which trends will be “Continuará”?

Which ones will be fantasy?

And which ones will provide a sound strategy?

First trend mentioned in December:

With the market now in a bearish phase, we are looking for more signs of an economic slowdown, with the possible move into raw materials. Should an overall panic set in, the mindset of hoarding something tangible like commodities often follows. 

When it comes to raw materials, we like to watch sugar futures.

To repeat, “Sugar is often a lead indicator. If futures clear and hold over 13.00, that’s a clue

Second Trend:

We believe that interest rates have bottomed.

Although TLTs rallied more recently, we believe that will be short-lived. A move in TLTs below 121 should provide a low-risk opportunity to look at TBTs, the ultrashort.

More on Bonds:

Powell knows all too well, that lowering rates could give us hungry commodity traders a bonus. Hence our belief rates have bottomed.

The Metals

We believe the metals are trying to bottom, but do not merit a big position just yet.

Gold and silver have made a good run up. Currently, I would be looking to take some profits if long from lower levels and have a no loss stop. I would hesitate on any new position unless the dollar closes the week out under 95.50 using the U.S. dollar continuous contract.

Equities:

Looking at the Modern Family, the Russell 2000 IWM, if holds 134.65 by the end of this week, returns over the 50-week moving average and back into a weekly recuperation phase.

Transportation IYT, is also back above its 50-WMA. That means IYT must close the week out over 164.

While Semiconductors never broke its 50-WMA, all the others have traded well below theirs.

Should IWM and IYT fail to hold above those moving averages, take that as fair warning.

Revisiting the 5 Megatrends:

Political unrest-with tempers flaring both around the world and here in the U.S., we are not happy to report that a “revolutionary” type of environment could very well increase this coming year. This will have a negative impact on most equites. And a positive one on commodities.

Marijuana-with legalization spreading, and the farm bill helping the hemp and CBD business worls, there will be opportunities there. Watch the giant beverage, food, and tobacco companies to be on the lookout for smaller cannibis companies they can buy.

3-D Printing-if the industry can figure out how to make it more cost effective, there is huge potential in this space. We believe this is a socially conscious way to look at investing as many of the innovations are for the betterment of mankind.

Environmental factors-Weather-related disasters are not going away. Watch for opportunites in alternative energy.

Alternative currency-As banking stocks decline and the younger generations look deeper into more virtual ways to make money, bitcoin, or some derivation, is still in infancy and could begin to emerge next year.

In the days and weeks ahead, we will update the progress of these trends “Continuará”.

Furthermore, we will look for specific instruments to help you capitalize on those that are setting up.

S&P 500 (SPY) 245 now closest support and if breaks, then 235 next. Over 251.62 could see more upside to 255.

Russell 2000 (IWM) 132 pivotal and 130 support to hold. Over 135 could see 138.70 and then 140

Dow (DIA) 230 closest support. 245 now major resistance.

Nasdaq (QQQ) 150 is closest support and should that break 144 next. Has to clear/close back over 155 to get interesting

KRE (Regional Banks) 46.20 support. Over 50.20 it gets interesting

SMH (Semiconductors) 86 closest support to hold. If cannot hold that level, back down to 80.00. Over 87 if holds, can see move back to 91-92.00

IYT (Transportation) 164 key for the week. For now, if that levels fails, see move back to 160 or lower. Above 164 possible to rally to 170-171.50

IBB (Biotechnology) the 80-month moving average comes in 90.25-last big support. For now, above 95 good with resistance at 100.

XRT (Retail) I remember in 2017 talking about a double bottom at 38.00. That was so one and half years ago. Last week’s low 38.10. Maybe triple bottoms. Now, if it holds over 40, could see 44.00.

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