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Monday, November 18, 2013

Daily update 11/19

IWM and QQQ had key reversal days.  SPY had a dark cloud cover day that was close to a bearish engulfing bar.  Here is the SPX daily chart.

SPX turned down from a trend line formed from the last two highs.  I have marked a horizontal area of SPX that formed after 10/23 (red arrow day).  That is the day the market internals really started diverging from price.  We have had two key reversal days on SPY since then also.  Lets look at the SPY 195 minute chart.

On this time frame we can see since 10/23 the biggest volume bars came while price was in the consolidation and are red.  The biggest volume bars since 11/8 have all been green, but still smaller then the red ones.  This afternoon we had the biggest red volume bar since the last swing low.

Many years ago I read a document on accumulation and distribution patterns.  I tried to find it today, but failed in that quest.  The distribution pattern was a rectangle with an upside break out that failed.
The last few weeks look very similar to the textbook pattern and internals are definitely diverging.  There is a possibility this is a small distribution pattern forming here.  If that is the case then price should fall back under the upper green line soon.  Here is a look at the current breadth chart.

Both breadth indicators turned negative again today.  I mentioned yesterday that could happen easily.  This is the same situation.  This is currently a weak cross so they could easily turn positive again. 

With round numbers (DJ30 16000, SPX 1800) a down side reaction would be perfectly normal.  People like to take profits at round numbers.  In this particular situation we have weak market internals combined with a serious lack of bearish sentiment.  The latest II sentiment survey showed 15.6% bears which was the lowest number since March 1987.  One thing is true.  It can no longer be said that everybody is bearish.  If there is downside follow through this week we could be in for a sizable pullback.  With such a low number of bears there is likely less hedging activity then usual.   I have mentioned a few times that the NYSE ticks were weak on this rally leading me to believe it was largely futures driven.  Today the ticks were very negative on the afternoon sell off so many individual stocks were being sold. 

The bears were unable to do anything with the last two reversals.  Now that we hit round numbers will it be different this time?  If we close lower tomorrow then it is possible the bears are going to be successful this time.  A close below 1775 on SPX would signal a failed break out.  That should indicate the last few weeks really were a distribution pattern that could lead to significantly lower prices.  It has been over a year since SPX has touched its 200 SMA.  Maybe it is time.

Chart practice has been updated with WFM the stock tonight.


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