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Thursday, July 11, 2013

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?


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