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Wednesday, June 4, 2014

Daily update 6/4

Another slow creep higher day.  Here is the daily SPX chart.


I mused last night that they might not want to sell before the ECB meeting.  That was true today.  SPX traded fractionally below yesterday's low and ended the day above yesterday's high.  That made it another outside day.  It closed a little above the trend line, but not enough to say it is meaningful.  This is the fourth day in a row the breadth has been less then 50% positive.  SPX new highs fell off a bit to 52 from a peak of 65 the other day.  Internally this was another weak day considering we are at all time highs on SPX.  Lets take a look at the SPY 60 minute chart tonight.


There was a small gap down this morning that the dip buyers rushed in to buy.  Once they pushed price to a new high early today we traded sideways until the close.  There is still a lack of buyers at the highs.  Everybody wants to buy the dip.  Notice the last three biggest volume bars were red.  We have a little bit of distribution creeping into the market.  This is a bit of a caution flag.  If that pattern continues we will reverse.  Here is a peek at the futures chart.


We got a couple of red bars overnight and early this morning.  That is another caution flag that the trend is weakening.  However, we ended the day higher and with a green bar.  It is evident on this chart people are rushing in very quickly to buy the dip.  They are not waiting for much of a dip at all.  When I first started trading I would see a pattern like this or reverse where they rush in to sell off and it made me think the trend is strong.  Over time I have noticed some powerful reversals from these patterns.  Traders getting over eager with a short term trend isn't always a sign that trend is strong.  It can be a sign it is about to end.

I suspect this rally has been driven by all the talk the ECB is going to do something at their meeting tomorrow.  Is this going to be a case of buy the rumor and sell the news?  I guess we will find out.  Will the outside days that have been bearish all year come into play?  This market looks really tired.  It is not hard to imagine a sharp turn down if the market is disappointed with their actions.  The intraday volatility has shrunk down to almost nothing.  The VIX was actually up today and closed back above 12.  I would guess some people were hedging their longs in front of the meeting.  It could be a hint that volatility is going to pick up a bit.  Stay tuned.


Yesterday I posted the declines in EPS from Q1.  This chart makes those numbers even worse.


Those drops in EPS happened despite almost $160 billion spent on stock buybacks.  The poor economy certainly had a major affect.  The question becomes what happens the rest of the year.  Last year the market celebrated bad data as more QE was expected.  Will that be the case now?

Here is an interesting article with a good historical look at the automobile sales data.  Auto Sales: Hype Versus Reality, You Decide. With  the inventory to sales ratio getting so high the auto makers will be cutting production soon if sales don't pick up some more.  If you are looking to get a new car though, you might be able to get a good deal this summer if sales slow down some.

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.