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Friday, February 28, 2014

Daily update 2/28

SPX closed slightly above the prior intraday high.  It was not without drama though, LOL.  After rallying strongly in the morning it sold off hard in the afternoon.  It dropped all the way back to 1849 before rallying into the close.  I commented yesterday on the new closing high that it was not a strong day.  It was an even weaker day today.  The strongest broad based ETFs on this rally have been QQQ, IWM, IBB (biotech) and SPY.  All but SPY closed red today.  High profile stocks TSLA, NFLX, GOOG, PCLN, and FB all closed in the red.  Here is the daily SPX chart.


That still looks like a short term top brewing to me.  There is clear resistance still.  Volume was up considerably today.  There were 229 new highs.  While better then yesterday that is still a low number.  There were only 3 days this entire month over 200 despite the big move up.  On the day of the intraday all time high in Oct. 2007 there were 351.  This still looks like a final blow off move to me.  I guess we will see how it ends.  Here is the SPY 60 minute chart.


Look at all that volume in the afternoon.  A lot of buying and selling there.  SPY touched the 50 SMA in the afternoon where the selling stopped and the buying began.  Bulls are clearly buying at that 50 SMA.  Bears are clearly selling strength above SPX 1850.  We are not going to go anywhere until one of those groups gives up.  The question that must be asked is who is doing what here.  At different points in time all groups buy dips.  There really isn't much we can infer from that.  However, there are not many people that sell into strength at bull market highs.  Hint.  It is not the retail investor AKA dumb money.  Persistent afternoon selling is the work of the pros.  Are they smart to sell here?

I don't know what is going to happen on Monday.  I am pretty sure the bulls are going to lose this battle soon and this market will do an about face.  I will be watching for a break of the SPY hourly 50 SMA to load up some shorts.  I believe when this market turns it is going to turn sharply.  I think March has more bull market/bear market turning points then any other month.  October is another very important month in that regard.  Stay tuned.

I have been reading about credit market problems in China since at least the middle of last year.  I know the central banks had to inject money into the financial system in June, Dec. and Jan.  Today I saw this blurb from Mike Larson at Money and Markets.  He was all over the U.S. credit problems in 2007 before they became obvious to everybody in 2008.

But one key market is sending out warning signs — the kind you should be paying attention to. That market is China.  A lot of the economic data and information coming out of the country is opaque, confusing, and in some instances, of questionable validity.  But you can observe market prices in the interest rate and interbank markets there, and get some clues on how things are going from them. With that in mind, we've seen a real blowout in something called the two-year swap spread over in China. Without getting too deep in the weeds, suffice it to say this is an indicator of financial industry stress. It started going haywire here in the U.S. before the great credit crisis, stock market collapse, and recession of 2007-2009 — servicing as an excellent early warning sign.  In China, that spread just surged to 121 basis points. That's the highest level for the seven years Bloomberg has been tracking.  Two other troubling indicators: Bad loans in the Chinese banking system just jumped to 592 billion yuan ($86.4 billion) — the highest in five years. Plus, the spread between yields on corporate bonds and on underlying government securities is widening steadily to levels we haven't seen in the past couple of years.  The question going forward is whether or not the weakness in select emerging markets — and the emerging credit market tremors I'm seeing in China — will be enough to upset all global markets.

The answer to the last question is absolutely yes.  The U.S. and Europe have been working together to survive their debt problems until somebody in the east blows up.  Europe wants to default on their massive debt, but they want somebody else to blame it on.  I am sure they will do whatever they can behind the scenes to ensure China or some other emerging market country blows up and destabilizes the global economy.  Now is the perfect time while both the U.S. and Europe have some economic growth.  I suspect this is exactly why the market is topping now. 

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

Bob

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