In a magic cake, the top layer is a sponge cake. The middle layer is custard and the bottom layer is fudge-like.
In the market and the rally since the November election, the top layer is spongy. Particularly referring to the Modern Family, when price levels rise, certain family members saturate.
The middle layer of the market or the custard is gooey, depending upon where you look.
The fudge-like bottom layer is the sweetest and most dense.
The Russell 2000 (IWM) perfectly fits the mold so to speak.
At the top of the cake or the channel on the monthly chart, each time IWM’s price nears 140-140.50, the sponge saturates. That drives the price down to the custard layer.
The custard layer or gooey price level, sits at the January 6-month Calendar Range high. When that price level hit today (around 138), a giant finger came in and scooped up some of the goo.
The Russell 2000 is not alone in testing the layers. Other members of the Family have their own cake to bake.
If the magic cake is truly magic, at what point do we investors taste the fudge?
A magic cake is very loose cake batter than magically turns into a 3-layered cake.
The Modern Family is one very tight Family that can magically forecast the next major market move.
The fudge-like layer for the Russell 2000 is way lower at around 130.00. However, if the market falls to those levels, there will be a lot of indigestion.
Looking at Transportation (IYT), the sponge cake layer failed below 171.15. The custard is coming up at around 165.50. The fudge is closer to 162.
Retail (XRT) never really got to 3-layers. The batter is too thick. In fact, Granny is not much of a baker as it turns out.
Biotechnology also saturated at the sponge level. Now, we are testing the goo. If holds, still hope for that sector.
Regional Banks may be the new Betty Crocker of the Family. The 3 layers are intact. One push over recent highs should alight the candles.
Semiconductors (SMH) are clearly saturated, particularly as the star of the tech show (Nvidia) took a tumble. Â Nevertheless, SMH experienced the giant finger scooping out some custard. Today, it held the fast-moving average.
