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Monday, April 7, 2014

Daily update 4/7

Now that was some follow through.  I want to back up just a bit here.  On 3/20 SPX closed at 1872.  Then an unbelievable streak of upside gaps began.  The market gapped up 10 of the next 11 days.  Then another unbelievable thing happened.  On the 11th day after tagging a new all time high SPX closed at 1865.  That is seven points below where the upside gaps began.  Was that some kind of coordinated pump and dump operation?  Who was bidding the futures up overnight and who was selling into the strength after the open?  I have never seen anything like that before in 15 years of studying the market.  We won't know if that has any meaning for the market until some future date.  However, I can't see any scenario where that kind of action is positive.  I think it is much more likely that it was a very negative thing to happen.  Here is the daily SPX chart.

SPX is negative on the year again.  We ran a few stops below 1850, but not too many.  The majority of the stops are a bit below 1840.  We ended the day extended in the short term and in the area of the last two swing lows.  This is key support.  Will that cause a bounce?  I would think the bulls will show up in the morning.  However, I don't think the bears are done yet.  I think we will end up breaking below 1840 at some point and that will bring in major selling.  Lets zoom in to the SSO 60 minute chart.

That was some straight down run.  There was a little sign of life by the bulls late in the day at key support.  The volume pattern has clearly shifted to distribution for now.  This looks extended enough to easily support a bounce.  Ideally I would like to see this contact the 18 SMA before starting the next leg down. 

We had 27 new highs today.  That is the first time we have been under 50 since coming off the early Feb. low.  That is pretty remarkably low one day off an intraday all time high.  We had 89 the day after the top in Oct. 2007.  That year we did not get under 50 until seven days later.  In the Jan. pullback we did not get under 50 new highs until 1/24 when SPX closed at 1790.  This looks like lower prices are coming.  Lets take a look at the VIX weekly chart.

The 6 SMA has been above the 18 since the Feb. low.  We made new all time high closes in SPX multiple times since then.  This is the first time in this entire bull market we were at all time highs in SPX with the 6 still above the 18.  This chart is in position for the VIX to spike.  It has been rejected at the 200 SMA for two years.  I have the feeling that will not be the case this time.  A weekly close above that 200 is surely going to spark much more selling.  We will have to watch and see how it closes for the next couple of weeks.

Is it just me or does this market look bearish?  It looks like we had a massive pump and dump operation.  Now we have a big drop in new highs and the VIX is in position to spike.  I have to think we are headed for a bigger pullback then we have seen the last two years.

SPX's 18 DMA is up at 1863.  A bounce up there might provide a good place to short.  If we break down below 1840 tomorrow instead of bounce look out below.


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