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Friday, April 4, 2014

Daily update 4/4

Now that was some break out failure.  We opened the day with breadth 79% positive and ended with 63% neg.  That was quite a reversal.  Since we opened at all time highs that was clearly the work of institutional sellers.  Here is the daily SPX chart.


I guess it mattered that we closed back below that trend line yesterday.  That was a clear key reversal day.  We sure got some volume today.  That is a pretty obvious triple top formation.  Do you think anybody will notice it?   Every other key reversal day of late has rallied the next day.  Even the one that marked the 2007 high saw that bounce.  So a bounce on Monday is probably likely and would not mean the reversal day is nothing to worry about.  Given the relative weakness in IWM and QQQ of late I think it is very important.  Lets zoom in to the SSO 60 minute chart.


SSO held the 200 SMA at the close.  It did confirm the break of the 50 SMA this afternoon.  Not often you go from all time high to a break of the 50 in one day.  Look at all that volume.  It was very similar in SPY as well.  Quite the run of blue bars so in the very short term price is stretched supporting the idea of a bounce on Monday morning.  However, I am sure this sell off will echo around the world by our open Monday so who knows.  It will be up to dip buyers. 

Today should not have come to a surprise to any of the blog readers.  Just last night I wrote "This market is not safe for bulls until both IWM and QQQ make new highs.  The relative weakness of former market leaders (also includes biotech IBB which is actually in worse shape) is a big huge caution flag.  Be careful."  The low number of new highs and lost market leadership were obvious.  This is very likely just the beginning.


I have no idea where to look at the P/E ratio of IBB.  However, I saw a guy on CNBC discussing it and he said it had a P/E of 195.  Wow.  No bubble there, LOL.  That is way worse then the small caps.  Our experience the last 15 years has showed us that a bubble anywhere is a problem everywhere.  These bubbles will drag down the entire market and I think it started in earnest today.  Buckle up the chin strap.


We saw two 90% down days back in Jan.  I don't know for sure how a pullback here will play out, but it is not hard to imagine a big rush for the exits.  Everybody piles in slowly, but they all want to take profits at once.  If SPX drops back below the 1848-50 area I would expect a lot of stops to be run.  A little panic could enter the scene.  Remember the Jan. barometer was down and well publicized.  The first quarter was basically flat.  The Dow has not made a new closing high since last Dec.  There could be quite a few people that decide it is time to book some profits.  They will be looking for any strength to sell into.  You might want to join them.


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.