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Thursday, November 21, 2013

Daily update 11/21

The Dow closes above 16000.  That should generate some headlines.  Of course the real question is whether it will stay there or not.  Financial stocks drove the rally today.  XLF made a new bull market high along with the Dow.  The rest of the major indexes were still a little off their highs.  Here is the daily SPX chart.

Yesterday's FED meeting minutes induced sell off was reversed today.  That is not surprising.  It happens fairly often.   The FED seems to generate a lot of head fake moves.  The first and second moves are not all that reliable intraday and over successive days.  Will tomorrow continue today's move or reverse yet again?  Lets take a peak at the 60 minute SPY chart.

The upside volume today was not nearly as high as the down side volume was yesterday.  Not a lot of conviction this morning.  Compare that to the big volume bars on 11/8 as people piled in.  There were 151 new highs today.  That is less then the 200 threshold we have been having trouble getting over the last few weeks.  The breadth chart is mixed with the McClellan oscillator negative while the 10 DMA breadth lines have a positive cross.  Breadth was very strong today at over 71% positive.  Is this a last gasp move or the start of a break out through potential round number resistance?  It may take a few days to find out.  I don't think the round numbers we are hitting are going to just give way.
I think there will be more profit taking going on. 

The bubble talk sure is heating up.  Most of what I have seen is how we could not be in a bubble.  The main reason seems to be that SPX's forward earnings P/E of 16 is too low to be a bubble.  The argument that really cracks me up is there is too much bubble talk for it to actually be a bubble.  Yep, that is a mighty fine reason right there.  I would have to agree on SPX.  It does not have a bubble valuation based on P/E.  There are other valuation methods that suggest it might be rather high though.  Here is the only article I have read stating we could be in a bubble Is The Stock Market Experiencing A Bubble?.  Interestingly it leaves out the most compelling evidence we have for a bubble.  That would be the P/E of the Russell2000 of course.  We have 500 stocks that are not in a bubble and 2000 that are.  Based on trailing 12 month earnings just about all indexes are at the high end of historical norms (outside the late 90s bubble).  They may not be bubble valuations, but they are certainly not cheap.   The trouble with bubbles is that when they pop they tend take everything down with them.  The Rusell2000 bubble will pop some day and it will most likely drag the other indexes down with it.


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