Market Analysis for Trading on 5/11/2015

Mish Schneider | May 10, 2015

Last week, in the middle of everything, I had cataract surgery. For the first eye I was sedated and if I saw anything, certainly had no recollection of it. With the second eye, however, the sedation didn’t go as well and I was fully awake. I saw the Doctor take out the old lens and replace it with a new and in my view, bionic lens that has me seeing with 20/20 vision for the first time without glasses or contacts!

Naturally, as one who thinks in metaphors, the link between my new bionic lens and the one that the market had surgically implanted seems like a logical fit.

For argument’s sake, let’s call the trading range over the last 2 ½ months (or the range within the range over the last 5 months) the limited view of the market caused by a cataract over its lens. Stepping out even further, maybe it’s the age of the bull market that gave it cataracts (be kind please!).

But why has the bull market grown old? Several different unknown variables are at play-will the Fed raise rates? Will the US economy shrink, stay the same or grow from here? Will the Iranian situation continue to fester? Will Europe continue to stabilize and demand for commodities grow? Will soft commodities behave given erratic weather as we approach summer? Will the rotating flavor of the month of Presidential candidates for the 2016 US Elections knock the planet off its axis?

Ok, I said I and the market got a new lens people, not a crystal ball!

Nonetheless, as we both seem to see more clearly, I go back to the conjectures made all of last week to repeat for the upcoming one.

1. TLTs (20 Year Treasury Long Bonds). Does appear that the Fed will raise rates at some point if one looks at the performance here. On Friday, TLTs tried the 200 DMA and retreated. For those worried about the impact, the market, while the rates firmed, never came close to selling off proportionately to what the Long Bonds did. With the new lens, the Dow took out 18,000 and the DIA tested the top of the 2015 trading range.

2. Looking at my 6 selected instruments (my Modern Family) to watch for a fair macro picture, Russell 2000s IWM, Retail XRT, Regional Banks KRE, Semiconductors SMH, Biotechnology IBB and Transportation IYT, yes all firmed with the market. The Russell 2000s and Retail or what I call Granddaddy and Grandma, did not clear the 50 DMA and closed the week stubbornly in warning phases.

Transportation cleared the 200 but not the 50 DMA, also now in a warning phase. Big Brother and Sister though, Biotechnology and Semiconductors did clear the 50 DMA and returned to unconfirmed bullish phases. However, as the leading sectors since 2013, neither came that close to the top of their 2015 trading ranges. Regional Bank ETF, is taking its sweet time clearing to new highs.

3. Interpretation is that the week ended testing the top of the trading range in certain instruments, but not so in any of the Modern Family with the exception of Regional Banks. Furthermore, IWM and XRT are relaying warning-in other words, caution on chasing strength, continue to think the Year of the Sheep paradigm-retreat when full, scatter to digest, then come back to pasture when hungry.

Concerning the new lens after removing cataracts, vision is good for distance, but requires reading glasses for close up work. Long term bullish, short term-neutral to cautious.

4. A word about Commodities-I like many-plain and simple. It seems rates will also have to rise to counteract any possibility that commodities skyrocket forcing an uglier rate rise by the Fed later on.

S&P 500 (SPY) 212.48 is the high of 2015. Under Friday’s low, would venture to guess trading range alive and well. Subscribers: Positive Pivots in all

Russell 2000 (IWM) 123.86 is the 50 DMA-has to clear or market will stall

Dow (DIA) 182.68 the 2015 high or again, like SPY under Friday’s low expect to see 179.50 again

Nasdaq (QQQ) Over 108 believe, unless that area breaks

XLF (Financials) March high 24.78 to clear now

KRE (Regional Banks) 40.00 to 41.50 a range to break decisively

SMH (Semiconductors) Cleared the 50 DMA and filled the gap from May 5th. Over Friday’s high is needed for more confidence.

IYT (Transportation) 156.40 now pivotal and over Friday’s high way better

IBB (Biotechnology) I wrote last week that a move over 350 was farfetched. Never mind! Now that is pivotal

XRT (Retail) A lot of earnings in this group coming up this week. Grandma needs to go to the mall and spend money. It starts with a trip over Friday’s high

IYR (Real Estate) Unconfirmed improvement in phase

ITB (US Home Construction) Has to clear 27.30 to be good

GLD (Gold Trust) That negative slope in the 50 DMA has prevented us from even looking at trading this right now

USO (US Oil Fund) Over 20.60 the bears will be wrong

XOP (Oil and Gas Exploration) Over 52.50 like this after the correction for more upside

TAN (Guggenheim Solar Energy) long term bullish

TBT (Ultrashort Lehman 20+ Year Treasuries) Over Friday’s high think higher

EEM (Emerging Markets) Monthly chart has huge consolidation going back to 2011

CORN (Corn) Like over 23.40

SGG (Sugar) Cash cleared $13.00

PHO (Water) Want to see this clear 25.50