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Friday, March 21, 2014

Daily update 3/21

The plot thickens.  Here is the daily SPX chart.

SPX had a big gap up that ran up to a slight new all time high right out of the gate.  The selling started immediately after SPX made a fractional new high.  After a mid day rally the selling resumed the rest of the afternoon.  We ended the day with SPX red and back below the .786 retrace line.  The volume was very high, but that is normal for quarterly expiration day.  There have been some significant turning points on option expiration day like Nov. 2012.  Is this going to be another one?
While not technically a key reversal day this was quite a reversal from the high.  Since this was a retest of a prior high a rejection takes on more importance if there is any follow through.  This kind of looks like a textbook double top at the moment.  Will it play out?  Lets have a look at the SSO 60 minute chart.

SPY went ex dividend today which screws up the chart for a while.  So a switch to SSO for now.  The resistance we have seen all month around the highs showed up again today.  SSO ended the day above the 50 SMA.  However, notice that the 50 is already below the 100 and price closed below the 100.  This is obviously a more bearish configuration then when we made the high earlier in the month.  That is not the only thing more bearish this time.  Check out the current breadth chart.

Both breadth indicators are still negative.  That is pretty rare with a new high.  Most retests manage to get one of them positive at least.  The 10 DMA volume lines are also negatively crossed.  A retest with weak internals like this usually plays out with a sizable pullback.  Sometimes major.

In VIX I wrote "However, look at the VIX chart closely.  The 6 SMA is still above the 18.  This is the first time in this entire bull market that SPX made a new high with the VIX weekly chart crossed like that."  So the weekly chart is positioned to spike up.  Now take a look at the daily chart.

The 6 SMA is also above the 18 on the daily chart as SPX made a new intraday all time high.  This chart is also in position to move up. 

TLT had a nice bounce today.  Here is its daily chart.

Nice volume today on the bounce.  This still looks bullish to me.  I think it is going to end up breaking out above the triple top that has formed this year. 

Lets sum up the technical evidence.  SPX has a potential double top.  TLT has what looks like a bullish daily chart.  The breadth data shows the market may be weaker then it appears.  The VIX chart looks poised to rally in both daily and weekly time frames.  When you put it all together the evidence seems pretty good for SPX to head south.  Is it finally time to hit the 200 SMA? 

As you know I have been looking for the bull market top for a long time.  There were some things in 2012 that were out of kilter that could have caused a top to form.  However, QE and hurricane Sandy cleared up those discrepancies.  If we had got a top that year I think we would have only  had a 20-30% pullback. Now that the indexes made new highs and sucked in hundreds of billions of new dollars we have a different picture.  The Russell2000 now has a bubble valuation with a P/E over 80.  The biotech index was up something like 65% last year showing rampant speculation.  Many of those stocks have no profits.  Sound familiar.  Can you say dot com.  The IPO market has been kicking out new tickers like crazy.  There were 6 IPOs to start trading today.  Is that venture capital money getting out while the getting is good?  I heard Jim Cramer on TV admitting there is froth in the IPO market.  I have mentioned many times about the low dollar low volume stocks rocketing up.  On top of all that we have soaring margin debt at record levels.  It is probably even higher now then the last report.  These are all signs of the stock market in the final mania stage.  This is different then 2007 when the manias were in the housing and commodities markets.  However, this is very much like 2000.  We are clearly in the end stage of a stock market bubble.  If you can't see that then join the crowd.  Most people won't get it until too late.  We are in for another big 50% or more crash.

I have noted the very low number of stocks making new highs lately.  We also have the Dow with an apparent three peaks and a domed house bull market topping pattern.  The transports have made a new all time high twice this year while the Dow has not.  We have a double Dow Theory non confirmation.  We now have the short term charts possibly forming a significant top.  This is March which has many bull/bear market turning points.  The Jan. barometer was down and widely publicized.  We have had two 90 percent down days which is often a sign of trouble.  Lots of warnings signs.

In markets everything matters.  Major turning points are created by a series of events in the market that add up to cause a trend change.  We have already had the series of events that have led to major bear markets in the past.  What really gets most market participants is the behavior of the market at the end of the trend.  In early 2009 we had the FED doing QE.  Congress had passed a stimulus package.  Earnings had started to improve.  Despite all that the market kept going down.  Every bounce sold.  This convinced most people the market could only go down.  Sound familiar.  Turn that upside down.  We have had signs the global economy is slowing.  Companies are only able to meet earnings numbers by buying back stock in large amounts and only after lowering guidance in the first place.  There are geopolitical situations that may have major impacts on the global economy and markets.  Even with all that going on the market takes it all in stride and rushes back to new highs after every little dip.  That is the sign of a mature trend.  People have so much faith in the trend they do not believe it can reverse.  Caution is thrown to the wind.  Just buy the dip.  Buy the dip.  It is the only thing that matters.  Then one day the trend reverses.  This repeating market action is what prompted the late Wall Street money manager Barton Biggs to say "A bull market is like sex. It feels best just before it ends."
Every trend reaches a price level where the balance of buyers and sellers changes.  That is really what causes the trend to reverse.  In 2009 we got low enough to change the balance where more people wanted in then out.  Now we have reached a price level that seems to have very few buyers.  It might be pretty easy to tip the scale where more people want out then in.  Next week will be very important.  The bulls need to get SPX to close in all time high ground and not look back.  Down side follow through next week will likely trigger considerable selling.


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