Daily update 2/20

Interesting, maybe I won't have to be shocked after all.  On Friday I wrote "We also had only an eleven point range from low to high for the entire week.  That is probably the smallest weekly range this entire bull market, but I don't know for sure.  Frankly, I am going to be pretty shocked if this market does not head down next week."  Last night I wrote "Price is very extended and internals are weak.  Once upon a time the market would sell off in a condition like this.  However, the law of gravity has been temporarily suspended for the market, LOL. "

I think gravity is being reestablished.  This looks like a true reversal to me.  Here is the daily SPX chart.

SPX ended the day on the 18 SMA.  This is the first time we have a red bar this year.   Lets zoom in to the SPY 195 minute chart.

That last bar has the biggest volume since the opening bar of the year.  SPY also closed below the lower channel trend line for the first time this year.   The Dow closed back below 14000 and there was another important development.  Check out the chart of the COMPX.

Yesterday the COMPX closed above last year's high.  When I looked at this chart last night I was thinking this is make or break time.  What a perfect top it would make if it would reverse tomorrow.  The volume pattern on this chart looks clearly distributive.  It looks way more bearish then SPX does.  I believe this to be an important part of the major top formation going on.  Clearly the sentiment has come in line with a textbook top now.  I know I am right.  If you have not made your bear market plan, now would be a good time to do so.  You will need it.

There are some market internals that are stronger then normal for a final bull market high.  Normally I would say we would be likely to retest the high before the bear market gets going, but I am not sure that will be the case this time.  It looks like we have two quarters of SPX negative earnings growth.  Here is a snippet of an earnings update from Standard and Poors. 

Standard & Poors says the S&P 500 is on pace to earn only $23.32 for the fourth quarter of 2012, which is 1.7% less than the index earned in the fourth quarter of 2011.
Source

The third quarter earnings were already negative.  We also had a negative print for Q4 2012 GDP.  I know the market ignored all this stuff while it was going up.  However, the market has been known to change its mind rather quickly.  The long trade is crowded and there is a lot of margin debt.  A margin unwind crash is coming.  That will finish the job of ensuring we go into a recession if we are not already there. 

Chart practice has been updated with GME the stock today.
http://traderbob58-chart-practice.blogspot.com/

Bob