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Wednesday, January 16, 2013

Daily update 1/16

Exhausted.  That is what the breadth data is indicating.  Three of the last four days we closed with negative breadth.  Today was the most negative of all even though we closed at a slight new high.  The number of new highs tailed off a bit again today.  This really looks like an exhaustion short term top to me.  I have not seen the market this tired in a very long time.  Here is the daily SPX chart.

You don't see that many hanging man bars together like that very often.  The market keeps running out of buyers when it gets up to the 1472 area.  I can't imagine why.  Just because price is short term extended and long term over bought is no reason not to pile billions of dollars into the market is it, LOL.  Lets zoom in to the SPY 195 minute chart.

The volume pattern since 1/3 is five distribution bars and three accumulation bars.  Two of the accumulation bars are somewhat suspect as even though the price on the bar closed positive, it was around or below the mid point of the bar.  This is similar to the Sept. high in that we started seeing some distribution not long after the high was made.  However, we never had breadth exhaustion at that high.  If the market rolls over it can do so pretty violently from this type of pattern.  It usually leads to a multi week type pullback.  Lets look at the breadth chart again tonight.

Both the 10 DMA and McClellan oscillator (MCO) charts took a pretty good dive today.  Generally speaking the higher the MCO is at the high, the higher the odds are of that high being retested fairly soon should a pullback occur.  Above 100 the odds are very high.  The 80 -100 level is kind of a gray area on the odds.  Below 80 and the odds go down pretty fast.  At 44 today the first significant bounce is likely to make a lower high.  Even though the MCO and 10 DMA breadth indicators were fairly weak back in Oct. at those lower highs, we never actually had negative breadth at those peaks.  With three of the last four days at the highs closing on negative breadth, the market is actually weaker then either of these indicators shows.  The one positive breadth day was only marginally so at that.  I think it would take some kind of fantastic news to propel this market higher.  From this condition it is unlikely to do it on its own.  Lets peak at the stocks vs their MAs chart.

Even the number of stocks above their 50 MAs is starting to show a slight divergence now.  The number of stocks above their 10 MAs is showing a sizable divergence.

A lot of bull markets end with an exhaustion top on the final high.  If the market pulls back from here, there is a real chance this is the final high of this bull market.  Everything looks right to me.  I guess we will see what happens. 

Chart practice has been updated with GS the stock today.


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