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Thursday, July 10, 2014

Daily update 7/10

The futures tanked overnight after Europe opened up.  However, at the U.S. open nobody was interested in selling into the panic.  That allowed the futures to drift higher all morning.  Here is the daily SPX chart.

SPX is still above the 18 SMA and it closed well off the low.  I would not read too much into that for the bullish case.  I think the bulls still need to prove themselves more then just buying a gap down opening.  Lets have a look at the futures chart.

The big sell off this morning caused the -DI line to cross the 35 threshold.  I am not exactly sure what to call this signal.  It is not a sell signal, it is more of a caution sign.  I studied the futures data going back to 1998.  What I found is that every big decline off of a bull market high triggered one of these signals early in the decline.  Like everything else in the market not every signal leads to a big decline.  We have had two signals this year on 1/24 and 4/7.  In both those instances price went lower before the pullback was over.  Sometimes that signal means the market is entering a sideways correction more so then a pullback.  Another interesting thing I ran into is when the signal happens after several weeks of sideways trading.  This usually means the market is making one last shake out before starting a new leg up.  So these signals will probably be tricky for me interpret until I get some experience with them in real time.  During the historical study I did not have any other information about the market like the position of other indexes or market internals.  I will have much more information at my finger tips.  I think that will be helpful with some practice.  The trend line the futures bounced off of today goes back to the April low.  So that is an important line.  A break should indicate the rally off that April low is over.  The MACD went negative for the first time since the end of May.  Even though SPX is still above its 18 DMA the futures technical picture is the weakest it has been since the index broke out to new highs.

There was a bank problem in Portugal and very poor economic data out of Japan and China that caused the early worry in the futures.  Over the years I have seen similar big gaps down get bought.  It is not a reliable signal that the market is not going down.  Sometimes it tanks the very next day.  It all depends on whether people are more interested in buying the dip or looking for an excuse to sell.  We have an overbought market and the high valuation has been discussed in the media quite a bit lately.  I even heard people on TV talking about the small caps being too expensive and to wait before jumping in.  People may be looking for an excuse to take money off the table.  I wish I knew how to know if that was true.

I think the data out of China and Japan is going to end up being significant.  I have mentioned the credit market problems in China a number of times and they continue to get worse.  The proverbial %$#@ seems to be hitting the fan over there.  I am quite sure there will big ramifications for the global economy.  The timing is the only question. 

What happens now? We are in one of the longest periods between touches of the 200 DMA for SPX ever.  We are obviously overdue.  On top of the other data mentioned there were some retail earnings flops today with TSCO and LL.  I don't think there is a shortage of reasons to take some profits.  I would not be surprised to see the market head down again tomorrow.

I had to downgrade the short term trends across the board today.  Be careful on the long side here.  The market has deteriorated considerably.

Here is an interesting chart of what the yield curve is doing.

Financial earnings are expected to decline this quarter.  The yield curve is pressuring NIMs (net interest margins).  This will continue until the yield curve steepens.  This quarter is not getting off to a good start either as the curve is at its lowest point of the year.  If you have exposure to this sector it might be a good idea to stay on top of things.  At times in the past the broad market has reacted majorly to beats and misses of financial companies.  Time will tell if they are an impact this time or not.

If you have an interest in the climate debate I posted about recently here is an interesting link
Statement of Patrick Moore, Ph.D .  This is full of actual scientific data.   I would much rather see money be spent on renewable energy and pollution control then worrying about climate change.  It is beyond our control and we have real and pressing problems in those other areas.  We need to educate as many people as we can.  I have seen some otherwise reasonably intelligent individuals get totally sucked in to this crap. 


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.