Daily update 10/8

Confirmed break of the 50 DMA.  The lower close today confirmed yesterday's intermediate trend flip to down.  That means the market has quite a bit more work to do to get fully bullish again.  Here is the daily SPX chart.

SPX also closed below the 100 SMA and the trend line formed by the summer lows.  A close below today's low would confirm a break of the 100.  Quite often that will lead to a move to the 200 SMA. The blue price bar indicates SPX closed below the lower Bollinger band and is extended in price.  We have a slight oversold condition, but I do not have my real over sold buy signal.  The VIX crossed above its weekly 200 SMA.  Since the rally began off the 2011 low every time the VIX has hit that MA it has been rejected.  Each time it was rejected SPX moved to a new high.  That may be enough to bring out some buyers tomorrow.  How the VIX closes the week will be very important.  If it closes above that 200 SMA it will be the first time since 2011.  That should make a bigger move down then we have seen in the last 18 months likely.

Listening to the political speeches today it would seem that both sides are digging in their heels.  The Republicans want to negotiate before reopening the government and the Democrats say they will not negotiate unless the government is reopened.   We went through similar talk in 2011 and 2012.  In both those instances both sides eventually sat in a room and made a deal.  I am not too sure this is going to end until they do that again.  I think the majority of investors expect that to happen which is why the market has not really been worried about it.  Maybe it was worried about it today.  The indexes that have been hanging around the highs sold off hard today.  This has to be a nightmare for money managers.  How do you put money to work when you don't really know what is going to happen and when.  It is quite possible a deal is eventually made at the last minute but the market could be much lower by then.  Each political party appears to be expecting the other to blink first.  I think a catalyst may be needed to make that happen.  The longer this drags on the more the market is likely to worry about it I believe.  Needless to say be careful on the long side here.  A bounce tomorrow does not mean we have a bottom.

Bob