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Gary Tanashian
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Gary Tanashian is proprietor of Biiwii.com. Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium market report 'Notes From the Rabbit Hole' (http://biiwii.com/wordpress/about-nftrh/). Complimentary analysis and commentary is available at the public... More
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  • What Do Small Caps And Semiconductors Think They See? 0 comments
    Aug 30, 2012 9:31 AM | about stocks: IWM, SMH, TWM

    The general Small Cap and the Semiconductor sectors are considered speculative leaders to the broad US stock market. In painting bullish chart potentials, what do they think they see?

    Small Caps: Still Bullish, But at Important Resistance

    We observed a bearish pattern on the Small Caps and a bullish one on the inverse fund TWM in mid-May, noted the "kiss goodbye" to the topping pattern at the end of May, noted a precarious situation for bears in mid-July, a Bull Flag channel in early August and then the competing bullish patterns a week ago.

    From the mid-July post:

    "Markets are still making higher highs and higher lows. But but but... the markets are supposed to tank claim the bears. Well maybe my furry friends, but despite the negative feel of this summer, they are making higher highs and higher lows."

    Technically, the bulls continue to hold sway. I have been beating the drum on risk because any non substance abuser in the financial markets must remain aware of the risk profile at all points during the ongoing cycles, but thus far 'price' says bullish.

    Today we update the IWM ETF and find a maturing Cup - complete with Inverted H&S characteristics (it's not an H&S reversal pattern because there was no previous downtrend from which to reverse) - that would ideally break above the red neckline, form a Handle and move higher to the ridiculous sounding target of the equivalent of RUT 930 or IWM 92.

    (click to enlarge)

    It sounds crazy, since we know the economy is decelerating and corporate performance is slowly degrading. But the charts (along with risk and psych profiles) said be bullish in May and June. Now this crazy chart says IWM has the potential to make jaws drop on the upside. Well, speaking of jaws, that jawbone about to start moving in Jackson Hole tomorrow morning will have a lot to say about that, as will the red neckline on the chart above.

    Semiconductors: At Support

    The semiconductor ETF SMH broke down through the neckline of an H&S top as noted back in mid-May: Semi's back below a neckline... not a pleasant chart. As the spring of angst (+ price destruction) morphed into the summer of continuing angst (+ contrarian bullishness) SMH found a bottom, painted a nice 'W' on the chart (targeting 35+) and broke above the old neckline. That is now support.

    (click to enlarge)

    Interestingly, I talked with an associate the other day who - unlike your blogger - remains intimately involved with the semiconductor industry and the manufacturing sector in general. He told me that semi is "dead in the water".

    Hmmm... what does the chart above think it sees? What does the IWM (small caps) chart above think it sees? Why do these charts have the nerve to think they can paint such bullish potentials? Well, we all know what these charts think they see; they think they see what the precious metals that blasted upward last week out of long-term consolidation patterns think they see; just like the broad US and European markets we have been bullishly tracking all summer.

    They think they see a perhaps coordinated campaign by US, European and Chinese policy makers to blow the inflationary gasket by engaging the competitive currency devaluation sweepstakes. Given that the risk profile has risen notably over the summer from its previous 'contrarian bullish' status, it could be a good idea to hear what the man has to say (or not say) tomorrow morning before committing too heavily to a particular viewpoint.

    Bullish looking charts can after all, be broken with the flap and yammer of a jaw.

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    http://www.biiwii.com/analysis.htm

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    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: small caps, semiconductors Stocks: IWM, SMH, TWM
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