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Monday, October 28, 2013

Daily update 10/28

More of a mixed day then Friday.  Even though SPX closed up on the day many indexes did not.  My watch list of big cap stocks was 2/3 red.  Here is the daily SPX chart.

The song remains the same.  The market is extended.  It is looking pretty tired though.  The breadth was negative today and barely positive on Friday.  There is the possibility of a short term double top developing between last Tuesday and today.  The last weekly bar closed above the upper Bollinger band as noted on Friday so there is reasonable odds of a pullback or at least a pause here. 

There really is not much to do until it stops going up.  The extended price makes adding long exposure high risk.  I will be watching the SPY hourly 18 SMA for a break.

In Rare yearly price action for 2012 I showed data from Bespoke on years when price never closed negative on the year.  At the time only in 1975 and 1976 did the phenomenon repeat again the next year.  Unless we have a major crash between now and year end it looks like it will happen again.  The next year the market was down the entire year not bottoming until March of 1978.  The decline was around 20%.    In 1976 SPX hit its high in Sept. with a retest into the end of Dec. then all down from there.  Here is a look at the chart.

Will it be different this time?  We don't know what is going to happen, but while everybody on TV is busy telling me the market can only go up from here you do have to wonder.  Bob Farrell's Rule #9 states:  "When all experts and forecasts agree; something else is bound to happen"  

It is clear to me that right now all experts and forecasts agree the market can only go up.  I have seen many long time bears capitulating lately.  David Rosenberg and Nuriel Roubini to name a couple.  I don't know what happens between now and year end.  However, come Jan. and the new tax year I think there will be considerable profit taking.  If it is like 1976 there may be some volatility before the end of the year.

Chart practice has been updated with UA the stock tonight. 


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