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Thursday, July 25, 2013

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.


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