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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.


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