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Wednesday, May 28, 2014

Daily update 5/28

Out of buyers.  SPX got above yesterday's high five different times today, but failed to stay there.  I guess buyers found the air a little thin up there today.  We will have to wait and see if that condition persists or not.  Hard to blame bulls for not wanting to buy today after the four day run up to new highs.  Here is the daily SPX chart.

Volume was nearly as heavy today as yesterday.  The NYSE volume was actually 6% higher today then yesterday.  Bulls would have much rather seen a good drop in volume.  The elevated volume indicates willing sellers.  Even though the bulls soaked up that volume today they might not be able to keep doing that if there are many sellers out there.  I want to show the IYT chart (tnx CF for pointing this out) tonight.  It had an interesting day.

This is the transports ETF and look at that volume  It was the heaviest volume day in more then a year.  This index has been one of the strongest this year.  This has the look of a volume climax top.  Some people might call it a blow off top.  Really high volume after a long run is a warning sign.  A close below today's low would give pretty good odds this is an important top for this ETF.  Since it is one of the few strong stock indexes this year there could be ramifications if this turns around.  Something we need to watch and see what happens.  Here is a look at the futures chart.

This morning we had a bearish engulfing bar.  The last bar made a lower high and lower low.  Since the bars went green on this rally this is the first potential reversal pattern to develop.  Another thing to keep an eye on.

Elevated volume on a narrow range bar with price extended can portend a reversal.  The possible volume climax top in IYT is also something to watch.  We have a couple of caution signs now.  The fact that this market keeps making slight new highs then selling off makes me wonder if that won't happen again here.  The 1897-1902 area should be support.  Below 1897 we have another failed new high and selling could pick up.

SPX broke out over a triple top on this run.  That makes this an important juncture.  Most of the time this makes a sizable move.  Either the market moves up nicely or the break out fails and the selling picks up dramatically.  Some book I read many years ago called it the rule of 4 break out.  I have seen many of these patterns in individual stocks.  They really do tend to make for a big move.  I think we are at the decision point and SPX should be ready to make the next big move one way or the other now.


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