Market Analysis for Trading on 5/12/2014

Mish Schneider | May 11, 2014

Dow Average Closes out a super choppy week at all-time high of 16,583.34. Interest Rates and US dollar firm. No significant phase changes in the 4 indices leaving a lot of weary traders to boot!

I have waited a long time for the second tier bottom in both the rates and the dollar to happen simultaneously-a long time! Now, it seems that the wait is over. Both gave beautiful technical signals, with the TLT’s leaving a blow off top for 2014 last week and the UUP leaving an island bottom-a gap to new lows followed by a gap higher. Then off she went!

The Dow looks amazing, but the S&P 500 best I can say, looks promising. NASDAQ has work to do for sure before anyone will regain major confidence and the Russell 2000s had a possible 3rd reversal candle after making new 60 plus day lows, yet remains beneath the 200 DMA.

Concerning the earnings season, of the 450 S&P 500 (SPX) constituents that have released results this earnings season, 76 percent have beaten estimates for profit, while 53 percent have exceeded projections for revenue, data compiled by Bloomberg show. The index’s members increased their earnings by 4.6 percent and their sales by 2.8 percent in the first quarter, according to analysts surveyed by Bloomberg.

So, if we add up the factors of a bottoming dollar, higher rates (assuming they rise incrementally) and a solid earnings season; then layer on that, the varied phases in the indices with the Dow closing on new highs-what does that formula say? Furthermore, add historical low volatility-in other words, complacency at a record high.

Markets are not stable at all-time closing highs. Assumption-something big is coming. No sell in May, go away kind of event either. In fact, last week even going to lunch led to some missed opportunities.

One thing is for certain, the old paradigms are shifting, the technicals tell you way more than any fundamental analysis, especially since logic is shifting and, keep risk to a minimum at this point until the impact of the very real possibility that rates will rise and the dollar will continue going up has in store for us at this time of historical complacency with the Dow closing at new highs and NASDAQ quite possibly on the verge of a collapse!

Will the Dow and the S&P 500 stem the decline or will NASDAQ drag down the mighty? Stay tuned my friends.

S&P 500 (SPY) Another defense of the 50 DMA at 186.63 with 188.45 area to clear Subscribers: Negative Pivots in all but DIA

Russell 2000 (IWM) Yet another new low for 2104 followed by a strong close yet with basically average daily volume. 110.75 the 200 DMA

Dow (DIA) Inside day here right at the highs-166.06 is the number to clear

Nasdaq (QQQ) Higher lows on this correction since April but also lower highs. In other words, compression in a range that will at some point break.

XLF (Financials) The 50 DMA is at 22.01

SMH (Semiconductors) Fascinating chart-inside day under the 50 DMA and above the fast moving average-for my money-will watch which way this one breaks

IYT (Transportation) Has some overhead, but remains in good shape still. This could benefit from a stronger US dollar

IBB (Biotechnology) Like Humpty Dumpty, sitting on the wall of the 200 DMA-really needs to hold

XRT (Retail) Retail is where diversity will continue-some will prosper in a rising rate, dollar environment-especially those that import foreign goods. Others will falter if the market does. Inside day just under the 200 DMA

IYR (Real Estate) At resistance but could power through

ITB (US Home Construction) Decided to switch to this ETF which is sitting on the 200 DMA and worth watching for next moves

GLD 123 support now to hold or fail

USO (US Oil Fund) Unconfirmed phase change to warning with 35.98 the real test of its resolve

OIH (Oil Services) topping action or at least, time for a correction

XLE (Energy) topping action

XOP (Oil and Gas Exploration) The 50 DMA is at 72.84

TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs broke under the fast moving average in its journey towards showing the blow off top for 2014

UUP (Dollar Bull) Subscribers: If FXE gaps lower and does not fill the gap-we will buy US Dollar through this ETF

EEM (Emerging Markets) Looking out, the emerging markets might have had their move up

IFN (India Fund Inc.) Subscribers: Really too bad we got blipped out-but watching over next couple of days to see if this pop holds

EWP (Spain) Subscribers: Gapped lower but if this level holds, long tern charts here look good

FXI (China Large Cap Fund) A rising US dollar may not be great for China-chart at support level 34.25

TAN (Guggenheim Solar Energy) Inside day on the 200 DMA

CORN (Corn) Subscribers: Our favorite trade is done for now-bumper crop reported. Around 33.20 is where I would like to possibly re enter

Bye for Now!