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Tuesday, November 5, 2013

Daily update 11/5

No upside follow through from the last two rally days.  Here is the daily SPX chart.

Price continues to stay within the range of the key reversal day.  Both breadth indicators crossed back negative today.  The flipping back and forth indicates we have entered into a consolidation.  The short term up trend is now over.  Here is a look at the SPY 60 minute chart.

The light blue lines mark the area where SPY has spent most of the time the last few days.  This is a narrow horizontal channel from 175.75-176.75.  Straying above or below that range has been met with selling or buying.  The last leg up was a very narrow upward sloping channel.  Now price has migrated to a very narrow horizontal channel.  What is next?  I did not mark the chart up, but there is a potential head and shoulders top pattern forming.  Do you see it?  It is kind of irrelevant at this point.  We already know from the weekly chart that breaking last week's low would likely be a fairly bearish short term event.  This morning we had another big red volume bar indicating a little more distribution.  I don't know how long it will be before we break out.  The longer we stay in this narrow range the bigger the break out should be. 

The new high data may be useful here.  Since May when new highs dropped under 90 the rallies were over and price dipped to the 100 DMA.  Despite the gap down this morning we still had 132 new highs.  The numbers are low for an uptrending market near the highs, but not low enough to signal high odds we won't make a new price high yet. New lows crept up a bit to 30 today.  That is a slight weakening of the internals. 

I mentioned the rapid rotation among the sectors yesterday.  Today's strength was in the NASDAQ index.  Despite most indexes being down the QQQ was up a bit. Unlike most days where the strong sector was up .5% or more the QQQ was barely up.  That may be another sign of slight weakening, but hard to say. 

Bonds have been selling off lately and today TLT was down considerably.  Is that a taper worry coming from strong ISM numbers?  I don't really know, but so far it has not really helped stocks much.

I had to laugh today.  I heard a guy on TV talking about the alarmingly low inflation data coming out of both Europe and the U.S.  The reason I was laughing was because I wrote in GLD and GDX 4/15

"I don't know what is going to happen here, but I think it is very important.  If gold has topped and broken down the most logical reason for that would be a deflation event is coming."

So to anybody watching gold the inflation data should be of no surprise whatsoever.  However, this leaves us with an important question to answer.  If inflation is falling as it appears, why are global interest rates rising?


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