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Monday, June 9, 2014

Daily update 6/9

Losing some steam.  The half century mark has historically been problems for SPX.  I am not sure it is a given that SPX will just fly up through 1950 and keep going.  Here is a look at the daily chart.

SPX had a narrow range bar today on a slight increase in volume.  I think we ran into an area where there were some people looking to take profits.  Sometimes rather innocent looking bars like that mark short term tops.  We will have to see what happens.  Lets take a look at the futures chart.

We remain very extended in the short term on price.  Not much new there, LOL.  When will we run out of rally chasers?  Here is a look at the all important IWM chart.

Here we are at the same level as the potential left shoulder.  Will there be resistance here?  This is pretty extended from its 18 SMA.  Will people be willing to chase it further with broad market indexes at new highs and extremely over bought?  Enquiring minds want to know.  Unfortunately there is no way to know the answer.  While everybody seems quite convinced that the market has started a new leg up and is onward and upward a cursory look at past charts tells us we cannot know that.  Lets take a trip down memory lane from 1998.

SPX spent several months consolidating before breaking out to new highs.  The end result was a near 20% move down into the fall.  It looks a lot like the current situation doesn't it?  Before the market rolled over everybody was very sure the market was going to continue upwards and onwards just like today.  I am not saying it is going to do the same thing, my only point is that there is no way to know if we continue up here or not.  The volume is pitiful on this rally.  The market is over valued and over bought.  We are truly in greater fool territory. 

The number of new highs are the best they have been all year.  This is usually a sign of strength.  Not foolproof though.  What is really missing is volume.  I showed on the blog a few days back how the 10 DMA volume lines are the weakest they have been on any rally in this bull market.  That is still true today even with the ECB induced spurt of buying.  Big money is not piling in here.  I suspect it is largely retail investors and traders.  There still has not been any selling pressure on this rally so we  have no idea what happens when we get it.  Since big money did not pile in on the break out we can't be sure they are sitting there waiting to buy a pullback.  At this point we have nothing to distinguish today from the 1998 situation.  Be careful.


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