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Thursday, May 9, 2013

Daily update 5/9

What happened today?  Check out this chart.  Whatever it was it started out with the Yen.

FXY (Yen) broke support first (red arrow in bottom panel).  Then UUP (dollar) broke resistanace (green arrow 3rd panel).  A little later FXE (Euro) broke support (red arrow 2nd panel).  Then SPX tanked a few minutes later.  There was clearly a chain reaction, but I have no idea if some news started the ball rolling or not.  I find this very odd.  I don't know if this was some kind of seismic shift in the markets, or a blip on the radar.  We will have to wait and see if there is any follow through on these moves or if they get reversed right away. 

Here is the daily SPX chart.

SPX closed back inside the price channel after one day out.  A normal market would probably have decent odds of making a trip toward the lower channel trend line.  I kind of think the channel may be valid.  The last pullback briefly broke the lower line and SPX  rebounded to break the top line.  That is normal channel behavior.  This looks like a trip to the 18 SMA seems likely from here.  Price got extremely extended and is due for a rest.  There should be good support in the 1595-97 area if we get that far down.  There were over 380 new highs today so no red flag warning there

We recently had the Barrons cover of the stampeding bull with Dow 16000.  Yesterday the Money section of the USA Today had an article titled "Hot to Trot, or Whoa?"  The subtitle went "Bulls see up to 25% gains ahead; bears say no way".  The article was accompanied by a big thermometer with Dow milestones on it going all the way back to 1000.  The article interviews a number of bullish strategists.  Only one bearish analyst that has a year end target of 1390 was mentioned.  No quotes or reason for the down forecast was given.  The bulls mentioned 1900 and 2000 as SPX targets by next year.  They interviewed Craig Johnson from Pipar Jaffray.  Here is my favorite part of the article.

Why does Johnson think a market already hitting records, despite a so-so economy, good but not great corporate earnings and slowing growth around the world, can keep surprising to the upside?  He says the market's decisive breakout above 1600 on Friday and prior market peaks in 2007 and 2000 signal that the bear market, which began in 2000 with the bursting of the tech-stock bubble and intensified during the 2008 financial crisis, ended in March 2009.
"The 1600 breakout," he says, "diminishes the bear's argument"

The decisive break out huh.  Just as a reminder here is the Dow from the decisive break out in 1982.

Look at all that volume in Aug.  That was a decisive break out that had lots of skeptics.  What we have today is a very wimpy break out that everybody believes in.  This is the kind of thing that often happens at THE top.


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