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Wednesday, December 19, 2012

Daily update 12/19

I am going to digress for a minute from the usual update to the fiscal cliff.  I was reading an article today where a money manager that normally seems reasonably intelligent was saying it is no big deal.  There would only be a minimal affect on the economy.  This is totally and completely idiotic.  It shows the writer has absolutely no understanding of human psychology and economics at all.  What happens when the stock market crashes?  People get scared and cut back on spending which slows the economy down.  It is the scared people that is important here.  Bernanke has made it clear the FED will be powerless to do anything to overcome the negative affects of the fiscal cliff.  The media has made sure that nearly every person in the U.S. knows that if we go over the fiscal cliff we will go back into recession.  This has scared people to the point that they will cut back on spending and a recession will become a self fulfilling prophecy whether or not the tax hikes and spending cuts would have had a material impact.  We are already in or very nearly in a recession now.  There is no way a slowdown in consumer spending does not finish the job.  The stock market will react negatively and reinforce the negative economic feedback loop.  We now return you to the regularly scheduled market update.

About face.  Here is the SPX daily chart.

That was quite a reversal today.  Notice this a much bigger down day then we saw for the first down day at the Sept. and Oct. swing highs.  The volume declined from yesterday's explosion.  Lets zoom in to the 60 minute SPY chart.

The volume pattern shifted to distribution today.  Will that continue?  SPY closed below the 18 SMA, but we do not have confirmation yet.  The VIX may be the chart of the day.

On a day that SPX was down only 11 points the VIX was up 11.5%.  Wow.  It eclipsed its last swing high and is in the area it was when SPX was about 30 points lower.  The short term uptrend remains intact after the little detour the last two days.  Is it starting a volatility spike as the weekly chart has been saying it might?

The TRIN article I posted suggested we may be in the process of making the final high before the bear market takes hold.  Did we just make it today?  I guess we will see if there is any follow through on the down side.  It is certainly possible.

Chart practice has been updated with CA the stock for today.


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