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Wednesday, July 31, 2013

Daily update 7/31

Interesting day.  The futures climbed above 1688 multiple times today, but could not stay there.  We have clear resistance in this area.  Here is the daily SPX chart.

SPX tested into the highs from 7/23 and 7/24, but was rejected rather soundly.  This has created a possible short term double top within the context of the bigger possible double top with the May high.  I call this the double double pattern and is my favorite reversal pattern.  It works just as well for bottoms.  It is powerful because it involves both short term traders and longer term players.  Here is a look at the double double top pattern from 2011.

The circled area is the short term double top that was slightly below the high marked by the red arrow that made the bigger picture double top.  We currently have a slightly higher high, but it is easily in realm of the bigger double top.  The key level for the current short term pattern is the middle low at 1676.  A break of that should confirm the short term double top and could lead to an increase in selling pressure. 

I found the SPY 60 minute chart interesting today.

SPY tried to break out over the upper trend line twice today, but never succeeded.  It ended the day down near the lower trend line.  Will it bounce again off that line?  There was quite a bit of volume on that last bar that sold off hard into the close.  We had worked off the daily over bought condition enough to support more upside.  The FED results were status quo as in more QE for now.  Why did the market sell off so hard?  

Check out the chart of TLT.

TLT retested the 7/5 low this morning and rebounded strongly.  This looks like a pretty good attempt at a short term double bottom.  If that turns out to be true there could be some portfolio rebalancing going on.  With bonds down big and stocks up this year the portfolio percentages for a lot of people are probably out of balance.  There could be some rotation out of stocks into bonds.

Chart practice has been updated with WDC the stock tonight.


Tuesday, July 30, 2013

Daily update 7/30

Another ho hum day as the market awaits the FED meeting tomorrow.  Clearly earnings are not enough to push the market higher.  It needs another catalyst.  Will the FED provide it or talk about taking away the punch bowl?  There are still a of lot people that believe the FED will start to taper in Sept.  If that is the case they will be sending a signal before then.  Here is the daily SPX chart.

Today was a very narrow range day with the close near the middle of the price range.  The volume increased significantly over yesterday.  Was that caused by people selling into the gap up this morning?  Here is the SPY 60 minute chart.

SPY gapped up over the 50 SMA this morning, but again failed to stay there.  Rally chasers are still absent.  I am sure that is because of the FED meeting this week and a worry of taper coming soon to a FED near you.  It looks like price is forming a slightly upward sloping price channel.  A break of either of those trend lines could see some follow through.  I suspect that will happen tomorrow after the FED announcement.

SPX has closed inside the range of the key reversal day four days in a row.  This market is wound up for a big move now.  The extreme overbought condition has been mitigated considerably.  Now we just need a catalyst to spur people into action.


The ugliest chart of the recovery?

The pundits on TV sure do a lot of talking about how good the economy is.  Once upon a time quarter after quarter growth rates less then 2% would have been viewed as a recession.  Now it is an improving economy.  The economy sucks.  Here is a chart that pretty much sums it up.


The five year growth in personal income is -5%.  This looks more like we are in a depression rather then a recovery.  This just can't be good for the country long term if the income does not get better.  What happens if we have another bad recession?

Speaking of recession this chart is still headed in that direction.


It is pretty hard to argue the economy is improving at this point.  The affects of the tax increases and spending cuts in Washington will continue to be a drag.  Now we have higher interest rates that are threatening to slow down the housing recovery.  The economists keep predicting the economy is going to catch fire at some point in the future.  I guess we will see if that happens.  I can't find any sign of it at the moment.


Monday, July 29, 2013

Daily update 7/29

Hmm.  New highs were only 93 today.  Dropping under 100 this close to the highs is probably not good.  Are bulls losing their mojo?  Here is the daily SPX chart.

Today is the first red bar since turning green back in June.  SPY rallied intraday to test its hourly 50 from below, but failed and closed below it.  The last two days we closed with SPY above that MA.  However, no rally chasers showed up to push price higher.  SPX is still above the reversal day low (1682).  A close below that level could kick off some more selling.  Check out the current breadth chart.

Both the McClellan oscillator and the 10 DMA breadth lines had a negative crossover today.  That is a little surprising this close to the highs.  Combine that with the new highs under 100 and I would think the odds of a pullback are rising.  Here is the stocks versus their MAs chart.

The number of stocks above their 10 (yellow line) and 20 (orange line) MAs have dropped dramatically.  The green lines on those sections of the chart mark oversold levels that often make bottoms during strong rallies.  Neither is quite their yet.  Also notice the stocks above their 50 MA (blue line) appears to be rolling over.  If we end up with a pullback this will be the first time in this bull market that SPX made new highs without that blue line getting above the green horizontal line after hitting the red line in a sell off.  In fact, every other time the red line was hit the green line was hit before price made new highs.  This looks like a sign of internal weakness which is also seen in the new high/low data.

At the moment the internals are weaker then at any other time SPX was at new bull market highs.  These divergences will clear up if price keeps rising.  However, if it does not then this time is different.  Pay close attention.  The latest reversal day low of 1682 is key here.  A close below that could kick off some selling.

Chart practice has been updated with FDO the stock tonight.


Friday, July 26, 2013

A tale of two earnings

Check out the charts of TRIP and EXPE and their respective reactions to earnings.

Both these companies are online travel sites.  They are basically in the same business.  What I find really odd is the price action before the earnings.  TRIP pulled back and consolidated as if investors were a little worried about earnings.  EXPE ran up as if investors were all excited about good earnings.  The exact opposite happened. 

Earnings disappointments are getting punished much more then we have seen in recent years.  I have seen quite a few beat up stocks this time.  I believe this indicates swing traders need to be cautious holding stocks through earnings.  The chart does not always tell the tale.  EXPE did not show any warning that such a severe shock was coming that I can see in the chart. 


Daily update 7/26

I read an interesting article on housing.  There were some charts in it that surprised me a lot.  You might want to check it out.  "Housing" - Is It Really Recovering? 

Dip buyers are still active.  What we don't know is if there are rally chasers.  SPX closed marginally positive, but on negative breadth.  The volume dropped significantly today.  Here is the daily chart.

This is one of those days that makes it look like SPX bounced off the 18 SMA.  The low today was 1676 and the 18 SMA now is 1677.  However, this morning when we down there the MA was at 1668.  Even in charts things are not always as they seem, LOL.  What actually happened was the futures tested yesterday's overnight low and it held.   The dip buyers then rushed in the rest of the day.  It remains to be seen whether they were smart or bag holders.  We are still within the range of the key reversal day.  The new lows dropped down to 43, but new highs also dropped down to 107 from 153.  If new highs drop under 100 then the odds greatly shift to the bears.  Lets take a look at the SPY 60 minute chart.

The SPY chart shows a lot of big green volume bars (accumulation) after the June low until 7/19.  Since then there are more big red volume bars indicating distribution.   The first two volume bars today dwarfed the last two from yesterday that I commented on as being good volume.  Until this shifts back to accumulation the market is suspect.  Be careful.  SPX still  needs to clear 1700.

The daily 18 SMA is rising fast and will either slap the market higher or SPX will break it and start the correction.  The bulls need a thrust up to show that people are willing to chase price and not just buy the dip.
The bears need a close below today's low.  Which will happen first?

Chart practice has been updated with MNST the stock tonight.


Thursday, July 25, 2013

The FED will taper, but when

Everybody knows that at some point the FED will cut back on QE.  The question is when and what will the reason be.  Will the economy be getting better?  Will the costs outweigh the benefit?  Here is a chart of how interest rates have behaved during QE programs.


Rates went up the entire time during QE1.  There was a precipitous fall after it ended.  Rates again went up considerably during QE2.  I think the fall off late in QE was related to the global weakness that showed up in Q2 2011 after the Japan earthquake.  There was another precipitous fall after QE2 ended.  Just like the previous programs QE3 is seeing rates rise.  Many people think that the latest rate spike was because Bernanke mentioned tapering.  I think it could be related to that but in a slightly different way.  While talking about tapering he made it pretty clear that QE would likely continue in some form until at least mid 2014.  Since rates tend to rise during QE was that a green light for traders to sell bonds for another year?  Even if the amount of purchases are tapered there still would be QE.  Can we be sure rates won't continue rising until QE is totally stopped?

The sudden rise in rates is starting to cause problems.  Home builder stocks and REITs are getting hit pretty hard.  Housing is constantly touted as a bright spot in the economy.  What happens if that slows down because of the increase in rates?  Here is what the D.R. Horton CEO said "There’s “no question” rising rates affected sales".  It appears it is possible that QE is doing more harm then good.  If the economic data gets weaker will Bernanke follow through on his pledge to increase purchases?  If he does will that drive rates even higher?

There will be no actual taper at the July meeting.  However, there could be lots of discussion and some signal of what is to happen down the road.  If rates move higher between now and Sept. I think they will have to do something.  According to Bernanke the object of QE is to help keep long rates down.  If that is not working then why do it.


Daily update 7/25

A bit of a rebound.  SPX closed back above 1687.  Here is the daily chart.

SPX closed right at the underside of the 6 SMA.  Breadth was a very weak 54% positive.  The most striking thing today was that we had more then 100 new lows.  I had to go back to 1998 to find a case of that many new lows a day after an all time high was touched.  It happened twice in July 1998.  Once was a few days before that bull market high and then again the day after the top.  The market then proceeded to make a 20% drop into that fall.  Here is the SPX chart from that time period.

The red arrows mark the days with more then 100 new lows after a new all time high.  So it has been 15 years to the month since the last time it happened.  Lets take a look at the SPY 60 minute chart.

SPY managed to close back above its 50 SMA.  There was some good volume on the late day rally.  Is that enough to restart the up move?  I still think it is important to get above yesterday's high before concluding that.  Check out the chart of the Yen ETF FXY.

The Yen has been in a steady decline since last Sept.  The red arrow marks the low of the move so far.  That happens to be May 22 (first SPX key reversal day).  That big move up in the Yen coincided with a 20% move down in Japanese stocks and volatility in global markets.  Notice the recent price action.  It appears to be turning up from a higher low.  The trend indicator is up and FXY seems to be thrusting up off the 18 SMA.  There are a lot of people doing carry trades based on shorting the Yen.  The Japanese government has been screaming it wanted to weaken the currency.  It was a can't miss trade.  No matter how strong a trend is in any market there are counter trend moves.  Is this going to cause a short squeeze?  If that happens and people have to pull off the carry trades will global markets be affected again?  Stay tuned this looks short term bullish to me.

It is not uncommon after a key reversal day for a market to go the other way the next day.  The important day will be tomorrow.  If the down move does not resume then we should be in for new highs.  If we head down tomorrow with already hitting 100 new lows today I would think a full scale correction is beginning and a trip to the 200 SMA is in the works.


Wednesday, July 24, 2013

Daily update 7/24

Another key reversal day in many indexes.  This one comes as SPX was retesting the May high so it should be especially significant if we see follow through.  Here is the daily SPX chart.

SPX has the first white bar since turning green back in June.  The selling started right at the open.  This could be much more significant then the last reversal in May.  That was clearly caused by Bernanke.  Since the futures started with a sizable gap up it was not any particular news that drove the selling. SPX closed back below the May high a little bit.  The bears fired a warning shot today.  How will the bulls respond?  Since this was a key reversal day and second one from the same area they need to do more then just get SPX back above 1687 tomorrow.  They really need to get a close above today's high to clear the air.  A bounce tomorrow that is lethargic will not do it.

Chart practice has been updated with DTV the stock today.


Tuesday, July 23, 2013

Daily update 7/23

Hmm, a reversal day in SPX.  Here is the daily chart.

SPX got a little above the lower red channel line yesterday, but closed back below it today.  Volume increased a little bit, but nothing dramatic.  There were no takers this morning as SPX got almost to 1700.  The buy the dip crowd came out after the morning sell off, but were thwarted late in the day as the market sold off again.  I believe that sell off can be explained by the Nova/Ursa ratio chart.

The ratio went negative today as people pulled money out of the bull fund.  It is likely the peak of the current inflow is now behind us.  The question is will people continue to pull money out.  Another negative reading tomorrow could signal we have a short term top in place.  However, every other down day this month (all two of them) was met with buying the next day.  Will that pattern continue or will the profit takers win the day?  The key for SPX is still the May high of 1687.  A close below that and we have a failed break out situation and the possibility of increased selling pressure.


Monday, July 22, 2013

Daily update 7/22

SPX added another 3 points today.  The COMPX also closed positively today unlike Friday.  However, some technology sub indexes were slightly red.  Here is the daily SPX chart.

Volume dropped off considerably today.  I changed the dark blue bars to light blue to make them easier to see.  I should have done that a long time ago.   Today was a doji day after a long run up.  Is the market getting a bit tired?  Here is the stocks above their MAs chart.

The number of stocks above their 10 DMA (yellow line 2nd panel) crossed below its MA for the first time on this rally.  In the very short term the rally appears to be thinning out a bit.  Sometimes it will pullback when that happens and sometimes it keeps pressing on.

SPX has not closed below its 6 SMA on this entire rally. One could make a case that this rally has never really been tested.  SPX is now about 8 points above the May high (1687).  Will that provide support if we test it?  Until we do some kind of down side testing it is hard to say if this is a good break out or not. 

Chart practice has been updated with ANF the stock tonight.


Friday, July 19, 2013

Daily update 7/19

Fragmented market today.  SPX closed a bit higher, but technology was knocked down a bit.  Here is the daily SPX chart.

SPX closed at the lower red channel line again.  It seems to refuse to get clearly back into it.  At the same time it has not been rejected either.  Price is still extended from the 18 SMA.  In other words the song remains the same.  The question now is will the selling in technology continue and will it spread to other things.  Tech is an important sector.  If the selling continues I am sure it will spread.  There are a lot of high profile tech companies reporting next week including AAPL.

The financials report early and have been supplying the bulk of the earnings growth (thank you FED) for SPX for a few quarters now.  A lot of companies that have reported have beaten lowered earnings expectations, but revenue is another story.  Will people continue to bid up stock prices from here if revenue continues to disappoint?

SPX closed about 5 points above the May high.  However, it did not do it on a thrust.  It was more of a slow creep up.  There were only 253 new highs.  I see the market clearly very over bought without any clear sign price will hold above the May high going forward.  This still looks like a probable double top to me, but it would take a close below 1687 to give us any indication I might be right.

I heard somebody talking about a melt up in the market next week now that we are above the May high.  I think a little perspective might be in order.  Here is the SPX monthly chart.

SPX is above the upper monthly Bollinger band and is right at the trend line formed from the last two peaks.  On top of that it is summer.  With the market stretched in the short term and the long term do you think there are high odds of a melt up from here?

Chart practice has been updated with EW the stock tonight.

The market and sector status pages have also been updated.

Have a great weekend all.


Thursday, July 18, 2013

Daily update 7/18

SPX closed slightly above the May high.  Here is the daily SPX chart.

It is right at the lower red channel line again.  Despite the strength across many sectors technology was not among them.  None of the major world markets have made it back to the highs yet either.  Not even Japan which had been in lock step with the U.S. in leading stocks higher.  There were 322 new highs today which was considerably less then the peak day of 7/11 (369).  We are well off the numbers from back in April and May also. 

Is this rally a buying climax?  Check out the Nova/Ursa ratio.

Clearly there has been a flood of money into the bullish Nova fund.  The 14 SMA is well above any other peak in the last year.  However, that is not all there is to the story.  Check out this longer term view.

This chart goes back to 2006.  The current peak and the May peak are well above any other peaks on the chart even from 2007.  This is the kind of number seen only on the downside at the panic lows in 2008 and 2011.  It would be pretty easy to make a case this is panic buying.  Besides the May peak, the only other peak in the same ballpark was from Oct. 2011.  That came after a near 20% sell off and the FED's operation twist was announced.  Both of those peaks were followed by a pullback.  If that happens again it will be happening from a retest of a key reversal day amid many market internal divergences.  It is hard to see how that would not end up with a trip down to the 200 SMA.  Therefore it is important to watch the price action in the coming days.  Can SPX extend the gain or will the air be too thin up here.  Price is very extended.  The internals still look like a retest doomed to failure while sentiment seems to be very bullish.  I guess we will see.


Wednesday, July 17, 2013

Daily update 7/16

Running out of rally chasers?  SPX got briefly to a new rally high (still below the May intraday high), but failed to stay there.  Is it any wonder, LOL.  The market is very extended to chase it here.  Whether this ends up as a pullback or more sideways price action remains to be seen.  The new highs are issuing a caution flag though.  Yesterday there were 182.  They were below the caution threshold of 200 I mentioned the other day, but it was a down day so I was not real sure it was truly cautionary.  However, with today being an up day and a new rally high we had even less at 162.  That is very low especially with the big gap up to start with.  Here is the daily SPX chart.

The futures actually closed a little below the open.  Volume increased today.  Even though it was an up day with the close below the open that looks a bit like distribution.  I mentioned there were lots of divergences in the market internals.  With the number of new highs dropping this low I am beginning to think this is likely going to turn out to be a double top.  If new highs drop under 100 before we get above that May high it would increase the odds of this being a top considerably.  Lets take a peak at the 5 minute SPY chart.

SPY formed a potential head and shoulder pattern today.  The neckline that formed in the morning was tested twice in the afternoon, but did not break.  However, SPY is still below the shoulder level at the close.
Price is likely to be choppy until it breaks the neckline on the downside or the head on the upside.  I don't know what happens on the upside with price so extended.  On the down side a break of the green line should target yesterday's low and could bring on some profit taking.

Chart practice has been updated with PSX the stock tonight.


The taper

The question on many investors minds is whether the FED will start cutting back on QE ("the taper") this year or not.  Here is an excerpt from the minutes of the last meeting.

Given their respective economic outlooks, all participants but one judged that it would be appropriate to continue purchasing both agency MBS and longer-term Treasury securities. About half of these participants indicated that it likely would be appropriate to end asset purchases late this year. Many other participants anticipated that it likely would be appropriate to continue purchases into 2014. Several participants emphasized that the asset purchase program was effective in supporting the economic expansion, that the benefits continued to exceed the costs, or that continuing purchases would be necessary to achieve a substantial improvement in the outlook for the labor market. A few participants, however, indicated that the Committee could best foster its dual objectives and limit the potential costs of the program by slowing, or stopping, its purchases at the June meeting. 

So about half think it would be appropriate to end QE before year end.  That is not just a taper, but a full ending.  Clearly it is not just a couple of individuals thinking it is time to stop or cut back at least.  In a question and answer period Bernanke said 

 "Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy"

Traders took this to mean that QE was on for the foreseeable future.  Bernanke did not specifically mention QE.  He also has mentioned several times that he sees the low FED funds rate as being accommodative monetary policy.  Since he did not specifically mention QE we don't really know if he was referring to that or not in his recent comments that sent the market flying up.  With so many FED members questioning whether QE should be cut back or stopped completely I have to wonder if he was really talking QE.  

The FED under Bernanke does not like to surprise markets.  Therefore they usually start talking about an action before it happens.  They also usually send out mixed messages at first.  I assume this is to get some market participants to adjust to the change before others.  That helps to keep everybody from doing it at the same time.  Think back to last summer.  The FED members started speaking about QE.  There was talk of doing another QE program along with talk against it.  In the end come Sept. they initiated QE.  So now we have talk of tapering and talk against it.  Is it the same in reverse and tapering is going to happen this year?

I don't know if any tapering is coming soon or not.  It seems odd to me to have all this talk about it if they are not planning to do it soon.  If they keep sending FED people out talking about tapering I think it will be coming.


Tuesday, July 16, 2013

Daily update 7/16

How odd is that.  A down day!  I heard them say on TV today that Bernanke will be issuing prepared remarks at 8:30 AM tomorrow before his congressional testimony.  They used to do that at 10:00.  I have no idea if the comments will be market moving or not.  Here is the daily SPX chart.

SPX closed below yesterday's low, but still above the 6 SMA.   This is the first time this entire rally that SPX closed more then just fractionally below the prior day's low.  I don't know how people will react to that.  Will the dip buyers rush in or will there be some profit taking?  Lets look at the SPY 60 minute chart.

SPY has a confirmed break of the 18 SMA.  It is still well above the 50.  There is a rather big gap from 7/11 it might want to fill.  At the moment that would be a little below the 50 SMA.

Are we starting a pullback or will the bulls show up again right away?  SPX is still very extended so it is easy to see there could be further to go on the downside.  It all depends on how ambitious the bulls are.  Price could work off that over bought condition in a sideways manner.  All this may or may not depend on what Bernanke says or what earnings come out.  It is just too hard to predict at the moment.

What happens if we get some downside follow through tomorrow?  The 18 SMA would be a normal target for a pullback, but it is nearly 50 points below.  It is also below the 50 SMA still.  It seems unlikely to get that far.  At the same time price is so extended it may overshoot the SPY hourly 50 SMA.  If the market continues down I will work on some possible support levels for the next update.


Vix golden cross

In VIX on 6/24 I wrote "If history repeats for this bull market we should have made a weekly closing low last week.  If the VIX closes above the 200 this week then it will be different this time from any other correction in this bull market.  If we end higher this week, but break last weeks low before we make new highs that would also be different. It seems like every time I point out a pattern in this blog the market does something different.  Will that be the case again? "

For once I pointed out something and it actually happened.  SPX did indeed make new closing highs.
Check out the current VIX chart.

The 50 SMA (purple line) has crossed above the 200 SMA (green line).  There have only been two other crossings in this bull market.  Those were during the big 2010 and 2011 sell offs.  This is the first time this has happened while SPX was at a new closing high.  The other occurrences were when the VIX was spiking as the market was selling off.  It is too soon to tell if this means we are headed for a pick in volatility or just a temporary blip.  If the VIX crosses that 50 SMA (15.26) again it would increase the odds that volatility is really on the rise.  That does not necessarily mean the market will go down.  Both stocks and volatility can increase together.  However, daily moves would be likely to get bigger.  That could include deeper pullbacks as well.


Monday, July 15, 2013

Daily update 7/15

That was a slow day.  Here is the daily SPX chart.

SPX is creeping up the underside of the lower red channel line.  The song remains the same.  Price is extended during a retest of a prior high.  Despite a new closing high SPX only got within about 2.5 points of the May intraday high.  Buyers may become a bit scarce here as people wait and let others go first.

There is a bit of a divergence in the numbers of new highs.  Here is the new highs chart.

This is showing a bit less conviction then we had before.  If we drop back under 200 again it would be a caution sign.  I would consider them dropping below 100 a serious warning. 

We are still in the process of testing the May high.  It still is not clear yet what the result of that test will be.  With price this extended a pullback or at least a pause seems likely in the near future.

Chart practice has been updated with TRIP the stock today.


A few interesting charts

This first chart makes me scratch my head a little.


Both exports to China and imports from China are falling off a cliff all of a sudden this year.  The year over year growth rate of imports has gone negative for the first time since the last recession.  Take a look at the longer term history.

The exports to China have gone negative once in a while over the last 28 years, but imports going negative is a rare event.  The only time they went this negative was during the depths of the last recession.  This may be saying something about weakness in the U.S. economy, but it clearly is not going to help an already struggling Chinese economy.  Time will tell if this is a blip or longer lasting weakness.  Obviously persistence would be bad for the global economy and could be a sign the U.S. is weakening.

This next chart is kind of interesting.


The black line is a weekly leading economic indicator (WLIr).  The blue line is the number of mortgage backed securities sold shifted forward 12 months.  I have to say there is a good bit of correlation there.  If that continues this chart suggests the economy could weaken for the next year.  I also find the WLIr interesting in the 2011 period.  When the ECRI was out saying a recession was immediate and irreversible this indicator never crossed into recession territory.  It also did a good job of warning of the last two recessions ahead of time.  This web site is subscription based, but I am guessing they will make their WLIr indicator chart public if it indicates a recession is coming to get notoriety.  If the economy is going to weaken over the next year that seems likely to happen with growth as slow as it is already.

This chart sums up nicely how QE is not helping the economy.


Do any of these charts look like the economy is picking up speed?  I think the economists that keep forecasting higher growth and keep getting disappointed will likely continue to be disappointed.  With global growth looking weak and seemingly getting weaker it is possible the U.S. economy slows down even more.  I am seeing some estimates of Q2 GDP in the .5 to 1% growth range.  Since the estimates tend to be high it is looking like a very weak quarter.  Remember people were talking about 3% growth in the first quarter that ended up 1.8%.  If the FED tapers QE I don't think it will be because of economic strength.  It will be the costs out weighing the benefits. 


Friday, July 12, 2013

Daily update 7/12

Another smidgen higher today.  Here is the daily SPX chart.

SPX closed right at the red lower channel line.  Not much to say about today.  We are still extended and testing a prior high.  That makes the odds of a pullback or consolidation very high.  Check out the Nova/Ursa chart from yesterday.

People are believing in the rally and piling in like no tomorrow.  That is now two spikes above the highs of the last year.  Are they too late to the party or will they be rewarded with a big move up?  I guess time will tell.  I would just remind people of the saying "sell in May and go away".  That saying is backed up by research unlike many things you hear coming from Wall Street.  The reason is that market break outs from June to Sept. have an extremely high failure rate.  Just think back to last year.  The break out of the spring high ran up a little then fell back into Nov.  Buying the break out was only profitable if you sold before the market corrected.  History is littered with break outs in July and Aug. that failed.  Whether this one is different or not remains to be seen.  Without a significant pick up in market internals this one is doomed to failure.  At the moment the market is nowhere near as strong as it was late last summer as it was breaking out of the spring high. 

In the short term the breadth on the rally was very strong.  That usually means a pullback should be bought for a retest of the high where ever that high is.  If this market just keeps plowing higher all through next week it would be a sign of immense strength.  That seems unlikely to me, but you never know.

Chart practice has been updated with VTR the stock today.

Have a great weekend all.


Thursday, July 11, 2013

NAAIM sentiment survey

This is interesting.  Here is the latest NAAIM chart.


The latest number is only 47.  That is extraordinarily low with SPX back at a new high close.  This sell off has been somewhat similar to the spring of 2011.  Lets look at the SPX chart.

In the March of 2011 SPX took a dip down to its 100 SMA just like the current correction.  The low NAAIM number reported during that correction was 41.  The yellow bar on the chart marks the day the NAAIM survey came out with a number of 71.  Off that low the active money managers piled in pretty fast.  The blue arrow marks day 12 of that rally which is the same number of days we have in the current situation.  The high that day was still 6 points below the prior closing high.  SPX did not make a new closing high before a pullback that saw the NAAIM number go up to 80.  The money managers bought that pullback.  SPX made another run to a slight new high, but failed to stay there.

Today is day 12 of the rally off the 100 SMA.  The low NAAIM number reported was 34.  That was a little lower then the 41 reported in 2011, but not all that much.  However, there is a big difference on what happened after the low.  The survey came out today and it was only 47.  This is an extremely low allocation with SPX at the highs.  Active money managers have to be scared here.  They are either scared to be long or they are scared the market is going to leave them behind because they are under invested.  There is clearly money on the sidelines that could fuel the upside.  Will they chase the over bought market and put it to work? Will they sit on their hands and wait for a pullback?  Do they have a valid reason for having the allocation so low? Will they ultimately be proved right to have a low allocation? 

Since I have been watching this survey the last couple of  years this is the first time they have not piled back in early on a rally.  Something must have spooked them.  Was it the FED talk of tapering, the bond market tanking, emerging markets crashing or something else?  What these money managers do could be the key to the market going forward.  There is definitely cash on the sidelines that could be deployed.


Daily update 7/11

Is this the start of a massive rally to new highs and beyond or a blow off top?  Here is the SPX daily chart.

SPX has a blue bar indicating it closed outside the upper Bollinger band and is extended.  However, it made a new all time closing high.  It is also right under the lower red channel line.  Is this a kiss of that channel good bye?  Is that channel line even important anymore?  This chart has the look of a double top with this straight up move back to the high.  At the closing high on 5/21 the 18 SMA was 1627.  Today with SPX closing five points higher it is at 1626.  That makes price more extended from it then it was back in May.  The 18 SMA  is still below the 50 SMA.  That shows the uptrend is not as strong as it was back in May.  Take a look at the current breadth chart.

The McClellan oscillator was over 200 today.  It has not been that high since last June and July.  The market made short term tops and pulled back some from those readings.  That is a common thing to do.  Sometimes it will consolidate sideways instead.  It is very rare to just keep going up for more then a couple of days.  Lets take a look at the daily SSO chart.

This rally is full of very narrow bodies on the candlesticks along with a lot of gaps up.  It is a very odd looking move to say the least.  Will that last gap turn out to be a continuation gap or an exhaustion gap?  I guess we will find out in time. 

Clearly price is very extended and breadth is in a position that often leads to a pullback.  A short term top that will lead to a pullback or consolidation is very near.  Whether this turns into a failed retest will depend on whether the sellers emerge in large numbers or not.  I don't know that there is any technical indicators that can tell us that.  The market internals are showing huge divergences.  Check out the number of stocks above their 200 MAs.

This is the biggest divergence in this indicator in this bull market.  This is very similar to the 2000 and 2007 retest final highs.  What happens now is very important.  If the market keeps moving higher this divergence will mean nothing.  However, if the market ends up rolling over it is likely to do so in a big way.  This is just one of many internal divergences.  That kind of makes this move look like a blow off top.  Pay very close attention to what happens here.  Will people hold or fold?


Wednesday, July 10, 2013

Daily update 7/10

Looks like a consolidation day at resistance.  Here is the daily SPX chart.

No gap up today.  How odd was that, LOL.  There was a little profit taking mid morning, but nothing much.  The pop after the FED meeting minutes were released was sold into.  However, after a brief dip the bulls showed up again.  This kind of narrow range day at resistance sometimes turns into a top, but I don't see anything at the moment that indicates that.  I think it would take a news event for that to happen.  All these gaps up are making people chase the market and there is probably not all that many people sitting on a lot of profits here.  Without a sell catalyst a retest of the May high seems likely after yesterday's strong thrust. Should we get there then I will have to evaluate the internals.  In the mean time the SPY hourly 50 is my bull/bear pivot point.

Chart practice has been updated with LULU the stock tonight.



The information in this blog is provided for educational purposes only and is not to be construed as investment advice.