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Friday, January 24, 2014

Daily update 1/24

Last night I wrote "We have all heard how resilient this market is.  The funny thing about resilient markets is that the resiliency always ends at some point with a big sell off.  Those pesky humans pile into a market slowly, but always want to cash out at the same time."  Today was a good example of that.  Here is the daily SPX chart.

The volume increased considerably and the selling persisted into the close.  Every little tiny intra day bounce was sold aggressively.  It sliced through the 1808 potential support level like it wasn't there.  Same with the round 1800 level.  The dip buyers put their hands in their pockets.  I think it is safe to say we broke the lower trend line.  SPX has a blue bar so it closed below the lower Bollinger band.  Normally this means price is extended, but we just had a low volatility Bollinger band squeeze so the normal rules do not apply.  I would say we have a slight over sold condition is all.  Here is a peak at the weekly chart.

Last week we had an outside bar.  The book on that type of bar says that a close outside the range is supposed to kick off the next short term move.  This week we closed well below the low which should indicate we kicked off a down move.  If my reading of the SPY 195 minute volume is correct that we have been under distribution since back in Nov. it is likely to be a considerable down move.  The first bounce is not likely to be the bottom this time.

Since the selling persisted into the close it did not show any sign of being exhausted.  That usually means a gap up will end up retesting the low before the day is over.  Some very big down Mondays have followed big down Fridays.  I don't know if that will be the case or not this time.  Just don't be surprised if it happens. 

I am sure there will be a lot of don't worry it is just a little pullback from the market pundits.  If you are heavily long this market I think you should be extremely worried.  I mentioned several times last year that I believe the market started forming a bull market top in May 2012.  Yesterday I posted the Dow with what looks like a completed top formation.  This month the transports made a new all time high while the Dow did not.  That is commonly called a non confirmation by Dow Theory pundits which is often a meaningful sign.  I posted a link to an article by Hussman showing a bubble pattern on SPX.  If you did not look at it I suggest you do http://www.hussmanfunds.com/wmc/wmc131209.htm.  He posted a chart in that article he published on Dec. 9,2013 that showed SPX with the idealized bubble pattern and a completion date of 1/14/2014.  SPX made its closing high on 1/15/2014.  Pretty close if you ask me.  So both the Dow and SPX have patterns that indicate they may have made a major top.  I think today kicked off a bear market.  If you still have not prepared a plan for how you will deal with another major crash I suggest you get busy.  You do not want to be making major financial decisions under duress.  We won't know for sure on the bear market for a while and price will be considerably lower by then.  That is just the way it works.  I have talked about a major top since the summer of 2012.  It has taken a lot longer then I thought.  I had hoped we would not get to the bubble stage, but we did.  I am going to say something I have never said on this blog.  I think it is a good time to raise cash levels.  The market is not an all in or out thing.  You can change your exposure over time.  I am firmly convinced we have made the high of the year. 

The market and sector status pages have been updated.
Have a great weekend all,

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