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Monday, August 19, 2013

Daily update 8/19

I believe the appropriate expression might be uh oh.  Here is the daily SPX chart.

No sign of bulls for the short term oversold buy signal yet.  This is the third day in a row we closed lower with blue price bars indicating we are below the lower Bollinger band.  I had to go back to the flash crash in 2010 to find an instance where that happened coming in the first leg down from bull market highs.  In that instance the third day was the flash crash.  This is only the second time in this bull market SPX has done this.
Obviously the bulls have lost their mojo for the time being.  I would expect any bounce now to be of the dead cat variety and the market retest whatever low the bounce comes from.  We ended the day at the weekly 18 SMA which could provide support for a bounce.  Will the bulls show up or not? 

I have talked about the technical divergences at the recent top.  Check out this chart of the stocks versus their MAs.

The bottom panel is the number of stocks above their 50 SMA.  This is the first time SPX made a new bull market high where that blue line never crossed the horizontal green line.  Here is the McClellan summation index.

The light blue line is SPX.  On the recent rally to new all time highs this index maxed out 569.  As you can see in the chart all other bull market peaks were over 2000.  This is a major divergence that has not happened since the 2007 top.  Here is a chart covering the last two times we made new bull market highs under 1000 on this index.

It happened twice in the last bull market.  I circled the areas in 2006 and 2007.  The sell off in 2006 was only about 8%, but the 2007 instance was the end of the bull market.  What will it be this time?

What we do know is the technical condition at the recent high is different then any other high in this bull market.  What we don't know yet is what does it mean.  Is it another garden variety correction or something longer lasting?  There is a very real possibility this is the end of this bull market, but it is too soon to tell.  I have seen a lot of market pundits rationalizing all the new lows as being related to the sell off in bonds.  I have not doubt that is the case.  However, I don't know if we can just write it off as having no serious meaning.  There are way more new lows then we should be having this close to the highs.  Is it really safe just to ignore it given the weak technical condition?  Back in the spring volatility erupted in gold and currency markets.  It then spread to global bonds and emerging market stocks.  Is it now starting to spread to developed stock markets?  Stay tuned.

Chart practice has been updated with JOY the stock tonight.


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