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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/20

?- 3/31/20

Up 5/29/20

Intermediate

Up 10/2/20

Up 8/21/20

Up 10/9/20

Sub-Intermediate

Up 10/15/20

? 10/21/20

Up 10/13/20

Short term

? 10/19/20

? 10/19/20

? 10/19/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Tuesday, July 31, 2012

Daily update 7/31

Did we start a pullback today?  Here is the daily SPX chart.


Indecision yesterday was followed by more indecision this morning.  However at the close we ended up below yesterday's low.  I think the more significant chart is of breadth.


We have completed negative crossovers again.  This is the first peak where the McClellan oscillator was under 100.  That lack of strength does not give us particularly good odds of a retest should the pullback continue from here.  This looks like an exhausted market to me.  At the same time, they have been parading a lot of people on Bloomberg TV telling me what a great time to buy it is.  This looks like it is now time to embark on the test of the June low I feel like I have been talking about forever.  We will have to see what happens after the FED announcement tomorrow.  I am afraid we have used up so much buying power on this rally that the low will not hold for long if we do get back down there.

Bob

Fund flows

I thought these charts from Schaeffer's research of mutual fund flows were pretty interesting. The first one is SPX versus equity mutual fund flows.


This chart shows steady inflows in the 80s and 90s with the exception of the crash of 87.  That is classic secular bull market behavior.  People generally feel good and continue to put money into stocks.  The classic euphoric top in 2000 really stands out.  Fund flows went negative during the 2000-02 bear market, but they turned positive again when the market turned back up in 2003.  The flows slowed to a trickle as we retested the 2000 high in 2007.  They even went negative a little before the crash.  Unlike the rally that started in 2003, the flows have stayed negative on this run up.  That is very similar to what happened in the 70s.  People continued to pull money out for many years.  This is classic secular bear market behavior.  I have heard and read a  number of people proclaiming these outflows are bullish for the market.  Here is what Shaeffer's research said about this chart.

It's worth touching on mutual fund flows, as well. Looking at domestic equity mutual funds, we've got record outflows over the past 12 months of around $175 billion. What's really amazing to me is that, historically, the 12-month flows tends to move with the overall market. Yet, what has happened since the lows last summer is an increase in outflows, along with a steadily higher stock market. From a contrarian point of view, this could be extremely powerful, as it shows how much more potential there is for higher prices should any flows make their way back to equities.

If things get better the money should come piling in and drive the market up.  That is certainly true, but when exactly are things going to get better?  People were smart enough to put money in consistently when the market was going up.  Is it possible they are smart enough to be taking money out now?  What I would expect at the final bottom of a secular bear market is something like what happened in 2007 in reverse.  As the market approaches the low, the fund outflows will dry up and fund inflows will start to happen.  It may be quite some time before that happens though.  I just don't see how we get real sustained upward progress in the market until the fund flows turn positive and stay that way.

Here is a fund flow chart for bonds.


Plenty of money still going in at extremely low rates.  I keep hearing a lot of people dying to short bonds. I have heard it called the short of the lifetime.  A lot of people kept calling for major tops in stocks in the 80s and 90s, only to be wrong.  The fund flows made sure of that.  This is exactly the same for bonds.  Now everybody is trying to call the top.  I am pretty sure the top is not going to happen until the fund flows dry up. There is no sign of that in this chart yet.  The most likely time for that to happen is right after everybody gives up calling a top in bonds, LOL.

Bob

Monday, July 30, 2012

Daily update 7/30

Not much pullback this morning.  We went up and tested yesterday's high and failed to stay there.  Here is the daily SPX chart.


You will notice the chart looks quite a bit different tonight.  I removed the triangle trend lines since they did not make any sense with the current price action.  I put in a new trend line from the April and May highs using the upper tail created in May.  I think this is still a valid down trend line.  I have added some trend lines to the last few weeks of price bars that show a perfect upward sloping price channel.  As you can see we are at the upper trend line now.  The part of the price action inside those trend lines looks an awful lot like a bear flag.  If that is the case, we will eventually break that lower trend line.  We will just have to see how the price develops because it could morph into something else entirely before that line is broken.  The daily candle looks pretty similar to the Rickshaw man candle we had at the recent low.  We are the furthest away from the 6 SMA we have been for quite some time.  It is likely we will move back towards it or stall and wait for it to catch up to price.   Check out the 130 minute SPY chart.


We can see we are still in the lower part of the price channel we have been following.  There are some upper tails on the bars that indicates some resistance in this area.  Since we are at the upper trend line on the daily chart that makes sense.  Price is very extended from the 18 SMA and vulnerable to a pullback on this time frame also.

This rally has not been tested in any real fashion.  Until it is, we can't really assess the strength of the move very well.  How people feel about the future will determine whether they want to sell here or rush in to buy dips.  The economic data and the FED this week can make a lot of difference in what the market does.  Stay on your toes.

Bob

VIX

There is a divergence between the VIX and SPX.  I have written about these a number of times in the Yahoo groups, but this is the first real noticeable one we have had for a while.  Here is the daily chart.


We have a higher low at this point and the 6 SMA is still above the 18 SMA.  This chart is in a position that it could turn back up very easily.  Take a peek at the 195 minute chart.


The VIX is hanging around the lower Keltner channel.  It has not clearly broken down.  Notice the area circled in June where it did the same thing when this rally was getting started.  This is a common occurrence at turning points.  The daily chart works the same way.  In fact you can see it happened at the end of April in the daily chart (above) right before the big swoon.

A divergence of this magnitude usually means a big short term move is coming.  Either the market reverses making the VIX correct, or the market keeps going up and the option players will pile in driving prices higher.

Shaeffer's research came up with an article about how the actual volatility of SPX is higher then the VIX value which is a somewhat rare occurrence.   You can read the full article here.
http://www.forbes.com/sites/greatspeculations/2012/07/16/fear-gauge-plunges-signal-stock-market-rallies/

What they are saying is when it happens with the VIX below 20 it usually means it is a good buying op.
Here is a chart they show in the article.


The one I circled was too early.  However, the other five occurrences did prove to be good buys.  With the VIX above 20 some were good buys and some were at the start of killer down drafts.

I almost fell out of my chair when I read the following lines.

You can see that during the bull market from 2003 through 2007, these signals occurred with a relatively low VIX, and they were very good at marking the bottom of market pullbacks. Being in a similar environment now, it wouldn’t be surprising if this were a good short-term buying opportunity.

Is there really anybody else in the world besides the author that thinks we are in a similar environment to the 2003-2007 time period.  Other then that, the research is pretty good.  What the chart really shows us is that this condition often precedes big moves.  All we need to do now is determine the direction.  I think we are very close in time to that decision.  We have four clear higher highs on the daily SPX chart.  If the market cannot reach escape velocity from that pattern then a big move down becomes extremely likely.

Bob


Friday, July 27, 2012

Daily update 7/26

This is a good example of talking the market up.  I suspect the ECB is hoping that was enough to get them through August so they can take their usual vacation over there, LOL.  So what happens now?  Here is the daily SPX chart.


Price is extended with a blue bar.  The last two blue bars did cause a pullback.  We will see if it is any different this time or not.  We are back above the down trend line and at a new rally high.  There was very high volume the last two days.  There is some risk that this was a buying climax.  Those happen a lot more often at lows, but they do occasionally happen at highs.  Check out the 195 minute SPY chart.


Price is back up into the channel.  This move was so fast the 6 SMA is still below the 18 SMA.  You can see that was not the case on the other peaks.  We can see that this rally has not been tested even a little bit.  Until we get some pullback it is impossible to determine how strong a move really is.  At the last peak, I said I thought the market needed to consolidate near the highs in order to move higher.  Something it failed to do.  With price extended like this we have the same situation.  People are not going to stampede in right away.  Lets zoom in to the 60 minute chart.


We can see price is extremely extended from the 18 SMA.  The most likely course of action on Monday is a pullback from this extreme overbought condition.  A gap up is likely to be met with some profit taking.  Here is a look at the breadth situation.


We have positive crossovers on the 10 DMA breadth and volume charts.  However, they could turn back down very easily from this pattern.  The advancing breadth MA actually dropped slightly today.  The more important thing on the chart is the McClellan oscillator in the bottom panel.  This is the first new high with a reading below 100.  This lowers the odds considerably of a retest of this high should the market turn down again.  We also have a triple divergence in the last three highs.  This is a pattern very prone to reversals. 

They were real cheery on TV this afternoon.  Many proclaiming a significant break out.  I would be more inclined to agree if there was a fundamental reason behind the move.  However, that is not the case.  I am sure the market has now flushed out all the weak hand shorts.  Fast money shorts tend to cover when the market gets extended on the down side providing a lift.  When they are flushed out, the market is more at risk of a big move down.

This is clearly a high risk place to get long.  If you are already long I suggest you monitor your positions very closely because the current technical setup is prone to sharp reversals.  If this was a buying climax with a triple breadth divergence the market could fall away very fast.  Don't be caught by surprise.  If price can hold up for a few days we could eventually go higher.  Given that the fundamental backdrop is very poor it is pretty hard to assess the odds of that happening.

Bob

Trading idea poll

When it comes to stock trading ideas


I can find all the trading ideas I need myself
  11 (28%)
 
I use 1 or more services to help me find trading ideas
  19 (48%)
 
I find some some trading ideas myself, but I would like more
  7 (17%)
 
I often have trouble finding trading ideas
  2 (5%)
 

Votes so far: 39


I found this very interesting.  I really had no idea how many people used some kind of service for trading ideas.  No wonder there are so many out there.  Thanks to everybody that answered the question.


Bob

GLD and GDX

There could be some things going on in the gold and miner complex.  Check out the weekly GLD chart.


The week is not over yet, but it is trying to form a bullish engulfing candlestick.  It is also attacking the 18 SMA.  Lets zoom in to the daily chart.


Price is getting back up into the resistance zone marked by the red lines.  This is the fourth time up above the lower line.  One of these days you would think it would stick.  The high today came right at the 100 SMA. This is not a convenient place to go long with the 100 SMA and other resistance and a big gap down below.  However, both the daily and weekly charts look like they are trying to make a serious attempt at starting a rally.  A low risk entry might present itself with a pullback into the gap or after some consolidation.

Here is the weekly GDX chart.


This candle is forming a bullish engulfing bar like GLD.  In my last report on GDX, I mentioned it was trying real hard to hold the .786 retrace level and form a crown pattern.  It looks like it has managed to do that.  Here is the daily chart.


It looks like we have made a successful test of the May low.  This chart still has more work to do, but it is developing nicely.  I would not make any long term prognostications here.  There is a lot of overhead resistance from the top formation last year easily visible on the weekly chart above.  The lows in that formation are very sloppy and it is hard to define where the biggest resistance might be.  This does look like a decent shot at making a low that could test up to the 200 SMA which is around 50 now.  It is moving down so by the time GDX would reach it that MA would be lower.  That is a very ugly top.  The first time GDX rallies up into the bottom of that formation it is likely to suffer a considerable pullback.

Bob

Thursday, July 26, 2012

Daily update 7/26

I guess the moral of this story is that if you can't actually find a real solution to a problem you just talk it to death.  We got a big gap up because the ECB is not going to let the Euro fail.  Really.  Does that mean that until today that was an option.  The last bounce that was caused by an actual proposed solution did not last long.  I wonder how long a bounce from a bunch of empty words will last.  I guess we will see.

Here is the daily SPX chart.


We ended up just below my lower trend line of the triangle pattern.  This market has really been trying hard not to make a decision on the next big move.  The thrust days of 6/29 and 7/13 had breadth over 80% positive.  Today we ended about 72%.  We did have a high volume day.  However, we ended the day very close to where we gapped open so it is a bit hard to say if that is real bullish or not.   The 6 SMA has crossed below the 18 for the first time since the June low.  Both the price chart and the internals are weaker then when we were last at this level.  Check out the 195 minute SPY chart.


Price bars are still neutral.  SPY tried to climb back up into the price channel but failed.  We did nicely fill the big gap down from 7/23.  We may have kissed the channel good bye again.  If the market turns down again we will have a good price pattern to draw the down trend line now.  Lets zoom in to the 60 minute chart.


We can clearly see that lower channel line was resistance all day.  I must have really got lucky when I put that on the chart.  It almost looks like I knew what I was doing, lol.   Even though we did not climb back into the channel we did close above the 50 SMA.  We ended with a high volume gravestone doji candle.  That looks suspicious for a little pullback first thing in the morning.  We have GDP coming out tomorrow and that could really shake things up.  Economists have been busy lowering their estimates the last few weeks.  There is a lot of data that looks recession like lately.  The actual number may be important this time.

We filled a big gap and stayed outside an important price channel.  We have a number of market internal sell signals.  I don't see enough to proclaim this the start of a rally.  I will need to see some follow through.  We are still in position to go down so the hourly 50 SMA looks like a good bear pivot to me.

Bob

Some market internals

The last few days have really taken a whack to some market internals.   Starting with the number of stocks above their 200 SMA.


This indicator is in a leading divergence with SPX as it has taken out its 7/12 low.  This is pretty serious technical damage.

Next up is the number of stocks above their 40 SMA.


This indicator took a serious hit and is also in a leading down side divergence. 

Here is the cumulative volume index.


This is a volume based indicator and is one of my favorites.  There was a big divergence at the last high.  It also has broken its 7/12 low.  All three of these indicators were hit hard enough for their 10 DMAs to cross below their 20 DMAs.  This is usually a pretty good sell signal when it happens after a lower high in the market.

How about the summation index.


The summation index has crossed below its 10 SMA issuing a sell signal.  This is a slower indicator most of the time so I usually don't wait for the 10 to cross the 20 before calling it a signal.  Like the other indicators downward crosses need a lower high to be valid signals.

One last item is the new highs.


The new highs have held in there very good.  However, there is a problem with the new high data that has happened in the last 15 years.  There are a lot of bond fund ETFs on the NYSE now.  If a lot of them are making new highs it distorts the numbers.  I think that may be the case now as bonds in general have been doing real well.

I see the futures are up pretty big this morning on something out of Europe.  There are a lot of market internals are on sell signals so it will be interesting to see if they end up selling the bounce.  One strong day will not turn on buy signals in these indicators from their current positions.  If the rally holds today it will still take some upside follow through.

Bob

Wednesday, July 25, 2012

Daily update 7/25

A nice consolidation day at the 50 SMA.  Here is the daily SPX chart.


Today does not really tell us much.  We have a doji candle with kind of long tails on both sides.  This is commonly called a Riskshaw man.  It is nothing but an indecision pattern and does not foretell much about future direction.  With both breadth charts negative the bears have control of the market so the bulls must really prove themselves here.  Check out the 195 minute SPY chart.


We can see three tests of the support line in the last two days.  Price bars are still red and the 50 SMA is starting to roll over.  I don't see anything that indicates we are going to reverse from here yet.  Check out the 60 minute SPY chart.


The mid day rally penetrated the 18 SMA, but could not hold it after it failed to take out the morning high. Taking out today's high would be a positive for the bulls and would likely cause some short covering.  Until the breadth charts get back to positive crossovers or we get above the 50 SMA I think we stay in sell rally mode.

Keep in mind a break of the daily 50 SMA could cause an acceleration down. 

Bob

Earnings so far

Most of the talk on TV is about the earnings beats.  I saw a reporter the other day that usually talks about earnings and revenue, not this time.  All he showed was the earnings part.  Looking at the following charts I think I understand why.



The slow down in the global economy and its affect on revenue seems to be catching companies by surprise. I think there were enough companies reporting by now to make this a representative sample.  The numbers might change some by the end, but I suspect they won't be too far off.  The last I read analysts were still expecting 12% earnings growth in the fourth quarter.  I think that has been helping to support the market.

Check out the chart of profit margins.


This chart clearly shows profit margins are at record highs.  They have likely wrung out all the cost savings they can.  Earnings growth will depend on revenue growth from here on out.  I think the rest of this earnings season is very important.  The revenue numbers will be looked at closely by the analysts.  There could be considerable revisions to earnings numbers down the road.  Whether people choose to ignore that like they have the poor economic data remains to be seen.

Bob

Tuesday, July 24, 2012

Daily update 7/24

Another day below the triangle lower trend line.  Here is the daily SPX chart.


Price held above the 50 SMA today.  They managed to get a close above yesterday's low to keep the bulls hopes alive.  We are below the lower rail of the regression channel which makes price a little over sold.  However, both breadth charts have negative crossovers so we have a different situation then the last two pullbacks.  Bounces when they happen will likely be short lived.  Here is the 130 minute SPY chart.


The first support line held today and bounced off it into the close.  I have add a new line at the last swing low from 7/12.  There could be a lot of stops under that low.  If we break it, the market could accelerate down.  I did not make the line green because I just can't see all that much support there in the chart really.  If we test that line we may bounce intraday, but I don't have any confidence it will hold for long.  We still don't have very good price action to draw an upper trend line so the 60 minute 50 SMA is still likely a good bull/bear line. 

The price action since the June low looks like a correction to the move down in Apr. and May to me.  It is possible we are starting a new leg down that will end up breaking the June low and keep going.  I will be watching the initial jobless claims closely now.  If they start kicking up over 400k the market might react very negatively to that. 

Bob

Odd sentiment survey data

The sentiment survey data was a little strange last week.  Lets start with the NAAIM active money manager survey.

This survey went from 63 to 67 in the last week.  Notice it is higher then it was back in May before the mini meltdown.  We are below the peak from earlier in the year and well below peaks from last year.  Should the market continue up there is still some fuel left here.  The flip side to that is that we are at levels that can cause a big move down if the market heads south.  Notice we are very near the same level we were last year right before the big crash.

Check out the Nova/Ursa survey.


This one is kind of interesting as traders have pulled money out on the last bounce.  It seems like something may have spooked people a few days ago.  This one is pretty much like NAAIM.  There is some fuel for the upside if the market continues up and they pile back in.  However, it is still well above bottoming levels so there is also fuel for the down side should the market head that way.

Check out the AAII sentiment survey.  This is from individual investors.  These people are a little more sophisticated then many people would believe.  Many think that individual investors are the so called dumb money.  I have watched this survey over the years and I can say they usually get with the program reasonably early on for the big moves. Check out this chart from the last few years.


Overall they did not do all that bad.  Last fall they flipped to more bulls in October and stayed that way the majority of the time throughout the entire rally.  Just like last year, the total number of bulls started dropping before the market topped out.  What I find interesting is that there have been consistently more bears then bulls this entire rally off the early June low.  This is clearly contradictory to what the active money managers think in the NAAIM survey.  It is very odd that the number of bulls is actually lower then at the June lows. Since the market was rising over the last week and the number of bulls plunged, it had to be something in the news that has people spooked.  We can see the same affect in the Nova/Ursa ratio as it dropped suddenly last week also.  It would seem that something happened that bothered everybody but the money managers in the NAAIM survey.

Shaeffer's Research has this to say about such a long streak of more AAII bears then bulls.

Schaeffer's Quantitative Analyst Chris Prybal looked into the historical data, and found this is the sixth-longest such streak since 1987. Looking at the previous five times this has occurred, after 10 straight weeks of more bears the bulls, the SPX is up an average of more than 5% over the next 30 trading days -- and it was higher all five times over the next 30-day period. 

  • Ending on 12/28/1990, we had a streak of 22 weeks where bears outnumbered bulls.
  • Ending on 8/17/2006 and then again on 3/20/2008, we had streaks lasting 14 weeks.
  • Ending on 10/23/1992, we saw a streak of 13 weeks.
  • Ending on 8/27/1993, we faced a streak of 12 weeks.
 

The good news is there is high odds of a 5%  move up in the first 30 days after the streak ends.   The bad news is we don't know exactly when the streak will end.  It is still another 12 weeks to the end of the longest recorded streak.

Yesterday's big gap down and negative cross overs on the breadth charts suggest we go lower for now.  The money managers are caught pretty heavily long so if the market keeps going south there will be a cascade as they bail out.

Bob

Monday, July 23, 2012

Daily update 7/24

Are we headed lower?  Here is the daily SPX chart.


We gapped down below the lower trend line and out of the triangle this morning.  However, it appears the market really does not want to make a decision as it ended the day just below the triangle.  Since we are running out of time there will be a definite decision soon.  Check out the 130 minute SPY chart.


We gapped right through our first potential support line and under the price channel of the entire rally.  This afternoon price went up and just kissed the under side of the lower price channel line.  This is often referred to as a kiss good bye.  I believe that is what happened today.  Here are the breadth charts.



We now have clear negative crosses on everything for the first time since the early June low.  This looks like sell rally mode to me.  We don't have any good price action to draw an upper trend line on so the 60 minute 50 SMA is probably a good bull/bear line for now.  This morning's low hit a trend line connecting the last two lows.  A close below that trend line would be a confirming sign the rally is over. 

I have heard so many people on TV saying that the Europe situation is priced into the market.  My question is simply this.  If the outcome is unknown, how can it be priced into the market?.  What I think is priced in is a nice neat and clean solution.  If such a solution was possible it would have already been done by now.  This reminds me of early 2008 when everybody was saying the subprime mess was priced in.  Then Lehman happened.  The stock market has a history of ignoring things until all of a sudden it can't ignore them anymore and crashes.  Spain is in big trouble and Italy is not far behind.  Some day it is possible the market stops ignoring this.

Bob

Recent economic data

The LEI came out last week showing a decline for the second time this year.  Here is the chart.


If you look at the history of this index you will see that it usually turns down for quite a few months before a recession starts.  That has not happened yet.  If we are in a recession it would be different then past history.  I don't think this index is measuring the negative economic pressure coming from abroad very well.  One thing that really stands out on this chart is the overall weakness of the index.  The last recession is the first one where the index went from an all time high to below the prior recession low.  That shows how severe that recession really was.  Based on past history the index should be near or at new highs by now.  The huge amount of stimulus that has been applied is not translating into economic activity very well.  It sure is adding to the national debt though.  We cannot spend our way to prosperity.  I wonder how long it will take people to figure that out.  Sorry for the minor rant, sometimes I can't help myself.

Here is a couple of quotes from conference board members.

Says Ataman Ozyildirim, economist at The Conference Board: "The U.S. LEI declined in two of the last six months, and its six-month growth rate has eased in the last three months. The strengths among the leading indicators have become less widespread as consumer expectations and manufacturing new orders offset gains in the financial, labor, and construction-related components. Meanwhile, the coincident economic index, a measure of current economic conditions, has risen slowly but steadily in the last three months."

Says Ken Goldstein, economist at The Conference Board: "The U.S. economy is growing very slowly. The CEI basically reflects this steady but soft pace of overall economic activity. The LEI is pointing to no strengthening over the next few months, as the economy continues to sail through strong headwinds domestically and internationally."


They seem to be indicating there is no sign of economic strengthening visible yet.  We will just have to see if it continues weakening.  Despite the fact the LEI index has not rolled over as long as it usually does before a recession check out this chart.


This chart is looking more like we could be in or near recession.  There was a period in the early 60s that looked similar to today where we avoided recession.  Other then that, readings at this level have meant recession. 

Next up is the Philly Fed.


There was a slight uptick, but nothing to write home about.  I thought this was an interesting chart.


This is a second trip for the 6 month MA to dip below zero.  As the text states it has a really good track record for indicating a recession.

This next chart is a bit scary.  You may want to skip it if you are looking for positive data.


There does seem to be pretty good correlation between the employment sub-index and the non-farm payroll numbers.  This is the first real sign I have seen that indicates the labor market is beginning to falter.  We will see if it is a warning sign for the next report.


Bob

Friday, July 20, 2012

GLD poll result


What do you think GLD will do?

Hold the current price lows and eventually move higher
  18 (40%)
 
Break the current price lows into a deeper correction and eventually move higher
  10 (22%)
 
Break the current price lows and spend a prolonged period at lower prices
  7 (15%)
 
I have no idea, but I wish it would make up its mind soon
  10 (22%)
 

Votes so far: 45

I see 62 percent believe we will see higher prices eventually.  We have 37% that believe we are likely to go lower first.  It is spending an awful lot of time near the lows like it wants to break down.  I guess we will see. Thanks to everybody that participated.

Bob

 

 

Daily update 7/20

That did not last long.  Here is the SPX chart.


We ended the day back inside the triangle.  The last three bars have formed an evening start candlestick pattern.  This is a bearish reversal pattern.  If we do not get back above the upper trend line on Monday then I think the odds shift to the bears.  A break of the lower trend line would be likely.  Here is the 130 minute SPY chart.


The last candle is a doji bar at the 18 SMA.  This suggests a possible bounce Monday morning.  Unless it is a super strong bounce I think they will end up selling it before the day is over.  If we start down out of the shoot I think sellers will be more aggressive then they were today. 

The next chart is SPX with both breadth charts.


At the June low the breadth showed a huge divergence with price.  The 10 DMA lines were very close together just like the are now with this retest of the prior high.  The vertical lines mark the recent peaks. Notice the strength in breadth at the prior two peaks is absent at this peak despite it being higher.  I  showed a divergence in the new high numbers last night.  This last bounce was technically weak while causing bulls to come out of the woodwork.  This is a very bearish setup if the market follows through on the down side.  The breadth indicators will all confirm the down move this time.  Something they did not do in the last two pullbacks.
 
I got a question today about why I keep talking about a retest of the June low.  I thought that was a good question that others might have as well.  The short answer is I can't rule it out.  Here is why:

1. Quarterly hanging man bar on spy has high odds of retest.  Read:
    http://traderbob58.blogspot.com/2012/07/quarterly-spy-chart.html

2. Summation index at -3000 has high odds of a retest.  Read
     http://traderbob58.blogspot.com/2012/06/mcclellan-summation-index.html

3. Economic data continues to get worse.

4. There is nothing in the market internals or weekly price chart that allows me to say that has become a low  odds outcome.  The market status system has only had 3 green weeks out of 10 items and this is seven weeks off the low.  By two weeks off the low last fall I had 5 green.  At four weeks I had 9.  The market is not exhibiting the same strength.  Take a look at the weekly chart.


The weekly bar finally turned green, but we only closed 2 points higher then we did 3 weeks ago.   If we follow through on the upside next week and close above this weeks high that would be a very different story. That should set up a test of the yearly high.  I just don't believe that is going to happen, but we will see.

Bob

Gold miner ETF GDX

The GDX ETF is showing a potential setup.  Here is the daily chart.


It looks like it is making a serious attempt at holding the .786 retrace level.  This is often called a crown pattern.  This is a common place to stop when something makes a higher low type bottom.  There was a lot of volume on the rally and so far much lower volume on this move down.  Here is the weekly chart.


We have red price bars so the short term movement is down.  There was a pretty decent looking high volume reversal candle at the May low.  There is some potential to make a bottom here, but it may still break down and test the May low again.  With both daily and weekly bars red GDX would need to show some clear upside momentum before going long.  However, this is an area to watch in case it does not do a full retest.  GDXJ is making a similar pattern if you prefer the junior minors ETF.  If miners are going to bottom here they should both do it.

Bob

Important

The information in this blog is provided for educational purposes only and is not to be construed as investment advice.