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Thursday, September 6, 2012

Daily update 9/6

Break out!  Is everybody bullish yet.  They sure paraded a bunch of bulls on Bloomberg TV today.  They interviewed one guy that has been steadfastly bearish for months and he said SPX was going to 1500.  I heard a number of people proclaiming new all time highs are coming.  Lets look at the daily SPX chart.

We got a blue bar today.  The last three blue bars led to a pullback.  We will have to see if that happens again.  So SPX made new bull market highs on a nice increase in volume.  We had 500 new highs today. That is the highest since July 1 of 2011.  If you look at the chart, that was right before the meltdown into the fall began.  There in lies the problem.  Back in the days of the secular bull market in the 80s and 90s you would never see that big of a sell off from a top with that many new highs.  However, we had similar numbers at the 2010 and 2011 tops right before crashes.  It really is a different stock market these days. 

The interesting thing to me is the only questions I got today involved upside targets and how soon are we going to get there.  The more important question is this a solid break out or a fake out.  Nobody knows the answer to that question because this is the market.  However, when there are very few skeptics of a break out the odds of failure go up.  When that break out is technically suspect, the odds go up even more.  Of the major indexes I look at, only the NASDAQ and SPX made new bull highs.  No other major index got above its spring high and some did not even get above their Aug. highs.  Check out the VIX and TLT charts.

Clearly both of these charts are showing huge divergences with their Aug. lows.  TLT can possibly be explained with the FED actions.  However, there is no stampede out of bonds here that one would think would happen if the stock market was going to race higher.  There is no explanation like that for the VIX.  It has made divergences like that at highs many times. 

The divergences are striking and the skeptics are few.  That is a common combination at important highs.  I can't predict whether this break out fails or not.  However, I think I can predict that if it fails, it will do so in a big way.  If we keep going up there is possible resistance at SPX 1440 from 2008.  I would expect that to be minor though.  If we close several points higher tomorrow it would be a pretty positive sign.  A doji day or a lower close would not be good at this juncture.  We just came from below the 18 SMA yesterday.  If big money was in a buying mood there should be no reason not to buy.  Watch the lagging indexes like the transports, cyclicals and SOX and small caps.  These sectors could play catch up if this is a real up move starting.

I have heard on TV and read many people expecting QE at the next FED meeting.  I really don't believe that will happen.  Will the market be disappointed if that is the case?  We may not know the success or failure of this break out until after that meeting.


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