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Wednesday, March 26, 2014

Daily update 3/26

Hmm.  We have had four big gaps to the upside in a row.  However, we ended down three of the four days.  Doesn't that strike you as odd?  I think there is a lot of supply here and not a lot of demand.  Here is the daily SPX chart.

SPX broke below the uptrend line two days ago.  I think we rallied back up yesterday to kiss it good bye as we turned down again today.  The retrace rally from the oversold buy signal got SPX to a new all time high, but a lot of indexes did not make it.  SPX never closed above the .786 retrace line either.  Today was yet another key reversal day.  We have had a bunch of bearish daily bars over the last few months that have not really played out.  Is it finally time?  The intermediate trend indicator flipped to down today.  It needs confirmation with a lower close.  Lets zoom in to the 60 minute SSO chart.

SSO may be forming a head and shoulders top pattern.  Watch that neck line in the days ahead to see if we break it.  With the daily chart's trend turning down today I suspect it will.

The sellers started right after the opening gap up.  SPX kept making a series of lower lows and highs all morning.  After1 PM things fell apart.  I noticed TLT all of a sudden spiking up followed shortly by SPY collapsing.  It turns out the 5 year treasury auction held at 1 PM today was very well received.  I think the demand for those bonds ended up sparking a rotation from stocks to bonds the rest of the day.  TLT closed at a new high for the year.  I have made mention a number of times of the bullish look to its chart.  Last year it went down all year as stocks went up.  This year may be the opposite.  At least for a while.  That would catch a lot of people off guard.  All I heard at year end was how interest rates were going to rise this year.  Hardly anybody was in the other camp.  Market surprises cause volatility.  Be prepared.

In March of 2009 as the market was making a final low Bloomberg TV had a round table on whether the market was making a major low.  There was some disagreement, but the consensus was that we were very close.  Once the market turned there were many people out saying we were in a new bull market and that we had just made a generational low.  At the time I found this rather odd.  Historically major bear market bottoms instil fear and very few people are out calling the bottom.  The normal divergences in the indexes were not present.  The number of new lows every day was well above the normal range for a major bear market low.  Technically it was very abnormal for a final low.  All this made me wonder if the market bounce would roll over to new lows and instil the proper fear into the market pundits.  What happened is that many people simultaneously recognized the low and were right.  The result was a massive move up the rest of the year.  We all know what happened Bob who cares.  I think this story is relevant.  In the 2000 bear market Jim Cramer was telling people to buy at every climax low only to see the market bounce and roll over to new lows.  I don't think he figured out we were in a bear market until it was almost over.  In the 2007 bear market he famously told people on Oct. 6, 2008 if they needed their money in less then five years they should get out of the stock market.  This call came after the market had already crashed, LOL.  Again there was no recognition of the severity of the situation until way late.  Market timing did not seem to be his forte.  I was listening to Jim Cramer on CNBC today talking about the froth in the IPO market and a few other relevant things.  He uttered the words this sure looks like a top.  All of a sudden I had a very scary thought.  I have talked much about how so many things look like a bull market top is forming.  At the other tops there was hardly anybody that recognized them.  I felt like I was standing on an island all alone.  I have seen quite a few people talking about it recently.  What is going to happen if this is really THE top and it is so obvious that even Jim Cramer can recognize it?  The margin debt is so high it will get ugly very fast if a lot of people rush to the exits at the same time.  We might get a 1929 or 1987 style crash instead of the much slower melt downs we saw in the last two bear markets.  I don't know how this will play out, but it seems like the ingredients for a rapid crash may be in place.


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