The Market Gets “Liquid” Courage

Tourists take part in the cliff-jumping craze, that kills dozens each year.

Nowhere is the cliff-diving craze more popular than at Rick’s Café in Negril, Jamaica.

While it may seem fun, if you don’t land right, the sheer impact of leaping from cliffs that high can be like smacking into concrete.

Yet, does that dissuade tourists?

Similarly, getting long (and short) the market lately, can also feel like leaping from high cliffs. For your P&L, it can be like smacking into concrete.

At Rick’s café, “liquid courage” is abundantly sold. So, despite signs all over the cliffs warning tourists of the dangers, after a few beers, many get inappropriately brave.

While this week has seen the Transportation sector (IYT) and the Russell 2000 (IWM) lead the cliff-diving, today, the rest of the indices and many sectors decided to also take the plunge.

Only, IYT, with airlines under pressure, mainly from rising oil prices, (and the Southwest incident which did not help), decided to stay safely on the cliffs.

Hence, IYT went back into an unconfirmed warning phase.

Does that make the new longs duly warned?

IYT needed to hold above that 50-DMA (188.48) again to confirm the bullish phase. It closed at 187.62.

Meanwhile, The Russell 2000 maintained its bullish phase, and like drinking a few beers might do, emboldened buyers.

Buyers in Semiconductors came out, which took this back over the 200 DMA.

Granny Retail (XRT) went into an unconfirmed bullish phase.

Biotechnology (IBB) , still in a distribution phase, worked its way higher towards what I call the Holy Grail price of 107.

And Regional Banks (KRE), in a bullish phase, slightly gained.

NASDAQ had the best day of the indices, with help from Facebook. QQQs closed up over 2.0%, yet stopped at resistance near the 10 daily moving average.

After hours, Amazon reported. The stock flew over 11% at time of writing. That clearly helps NASDAQ, but will it do anything for the rest of the market?

Looking at Transportation, for years I have found it to be a reliable harbinger of things to come concerning the economy, therefore for the market as well.

With rising oil prices the main culprit, should shipping both goods and people get more expensive, that’s enough to keep even the bravest (and drunkest) on the sidelines.

Furthermore, with the cost of borrowing money increasing in the face of rising interest rates, once the beer buzz wears off, we might see some inexperienced cliff-divers emerge from the water a bit bloody.

Finally, if IYT confirms the warning phase on Friday, I imagine the Russell will follow in kind.

Then, the leapers who flung themselves into new longs without considering the risks, could wind up realizing they took a wrong landing.

S&P 500 (SPY) 266-267 resistance was tested today. 268.54 is where the 50 DMA comes in. Support now at 264.

Russell 2000 (IWM) 154 now the place to hold. Through 155.50 157 next resistance

Dow (DIA) Over 245-246 way better

Nasdaq (QQQ) 162.50 pivotal support. 164.45 resistance to clear