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Friday, June 6, 2014

Daily update 6/6

Day two of ECB excitement.  Here is the daily SPX chart.

Volume dropped just a bit today on SPX, across the NYSE it was up from yesterday.  Breadth ended the day at 70% positive.  This is rather strong relative to the amount we were up.  That signifies a lot of stocks were up a little bit.  New highs were 353 (103 SPX).  Those were the highest numbers since last Dec.  There is some risk this is a two day buying climax similar to Sept. 2012 after the FED's QE announcement.  That kind of risk is very hard to quantify.  How high do we go before the temptation to take profits overruns the desire to chase the rally higher?  Here in the 1950 area there might be a temptation for some to cash out.  But then again maybe most people decide to let it ride.  Lets take a look at the IWM chart.

IWM made it up to the trend line today.  It appeared to provide resistance today.  There is also a possible head and shoulders top pattern forming.  There is more room on the upside to the level of the left shoulder.  I have no idea what happens here.  We will just have to wait and see how it unfolds.

The market is over bought, but in runaway mode.  I don't know how to predict what is going to happen here.  Runaway mode can end without warning.  It can continue up further then one can imagine.  It can trade sideways for a while and continue up. It can also reverse sharply.  If this is a blow off top it will likely reverse sharply, but from what level.  About the only advice I can offer is don't hold shorts overnight while it is rising.  This is a high risk place to put on long swing trades.  This rally has no volume and has experienced no real selling pressure.  I think that means it could turn down very sharply if a selling catalyst comes along.  There is no overhead resistance to stop the market so there is no reason it can't keep floating up as long as the sellers hold on.  Unpredictable.

I am not real sure what to make of this chart, but it is interesting.  Check this out.

Look very closely at the peaks around the 4% level in this chart.  Did you notice the dates?  Do these dates sound familiar 1973, 1987, 2000, 2007.  Those peaks in the chart all happened around the biggest stock market sell offs in the last 50 years.  Is it coincidence or is there a connection?  We are there again.  Will it be different this time?  This chart makes it look like too much debt is a bad thing.  Something many modern day economists seem to disagree with.  Being an engineer fluent in math the concept of borrowing and spending your way to prosperity makes absolutely zero sense to me, LOL.  Historically boom and bust economic cycles have always appeared with massive credit bubbles.  It seems pretty clear to me, but then again I am not an economist.


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