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Friday, January 18, 2013

Daily update 1/18

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Just after the close today I saw NYSE floor trader Ken Polcari interviewed on Bloomberg TV.  Last summer he was constantly skeptical of the rally until SPX broke above the spring high.  He then capitulated into a bull and of course the market then topped a few weeks later.  He and another guest were discussing how bullish the market is now.  Right at the end of the interview he said something to the affect that we are all in agreement down here that 2013 is going to be a great year.  How odd. Several hundred traders at the NYSE all agree on something about the market.  What are the odds of that happening?  More importantly, what are the odds that they all agree and will be proved right?  I guess everybody is going to get rich this year.  Pile in long and use all the margin you can boys and girls.  Nothing can go wrong.

In Rare yearly price action for 2012 I wrote about the fact that in 2012 the market was never negative on the year.  I also noted that only in 1975 and 76 did the market do it two years in a row.   1975 was the first year of a new bull market which made 76 the second year.  We are nearly completing year four of the current bull market.  I am willing to make a prediction that something will go wrong and we will trade negative on the year before this year is over.  In a leveraged market that has many people piling in after a big gap up, I am also willing to say there will be a margin debt unwind crash this year.  Even if we do not go into a prolonged bear market there will be a better buying opportunity down the road.  Only if you believe that nothing can go wrong should you be putting new money to work at these levels.  I honestly don't believe I have ever seen a more complacent marketplace.  I think this is going to be a lot more interesting of a year then many believe.

Another late day push has SPX at a new closing high.  Here is the daily SPX chart.

That is quite a run without any pullback.  I wonder what happens the first time it does pullback.  Oh wait.  Silly me.  I forgot pullbacks have been eliminated.  My guess is that going below 1475 will cause a lot of fast money people that bought coming off the Nov. low to take profits and cause a rather large one day move down.  Clearly this is not a place to be a buyer despite the break out.  This is a pattern prone to break out failure due to the market running out of people stupid enough to chase a pattern like this, LOL.  Lets zoom in to the 195 minute SPY chart.

Since the blue bar, SPY only pulled back to its 6 SMA before making a slight new high.  I guess we will see if it can stay up here next week.  I have my doubts, LOL.

Here is the stocks vs their MAs chart.

There is a pronounced divergence in the number of stocks above their 10 MA.  This looks similar to the circled area from last summer.  Even the recent price bars look similar.  I guess we will see what happens.

Chart practice has been updated with CRM the stock today.

Have a great long weekend,

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