If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Thursday, July 17, 2014

Daily update 7/17

What a difference a day makes.  Here is the daily SPX chart.

The divergences I mentioned last night played out today.  SPX closed below the 18 SMA for the first time since back in May.  New highs dropped down to 95 (33 in SPX).  Breadth ended the day at 78% negative.  That is the worst since back at the Feb. low.  Needless to say it was a very broadly negative day.  Here is a look at the futures chart.

The futures ended the day below the trend line that extends back to the April low.  It needs to confirm that as a break, but if that happens it should indicate the rally from that April low is over.  We have had lots of warning signs lately so that seems likely to happen.  We got the sell warning signal marked by the yellow arrow.  The 10 DMA breadth lines were negatively crossed on the retest of the high.  Tons of divergences in all market internals.  Now we seem to have confirmation of the down side on a very negative day.  Lets take a look at the current breadth chart.

This is an odd setup that is very rare.  The McClellan oscillator is in very over sold territory just one day off a test of an all time high.  A very similar setup happened back in mid Dec. in the circled area.  In that case we traded sideways into the FED taper announcement then rallied to new highs.  The 10 DMA breadth lines were negatively crossed on a retest just like now.  It is amazing how similar the chart looks.  Most of the time that is good for a 5% or more pullback.  However, it was Dec. and everybody was expecting the famed Santa rally.  Things are completely different today.  Instead of being in the seasonally best time of year for the market we are heading into the worst.  At that time IWM was at the highs like everything else.  Not so now.  In fact today it closed below its 200 DMA.  I think we will get a much different outcome this time.  This has been the first or second longest streak without a touch of the 200 DMA for SPX in history.  Everybody piles in slowly on a run like that, but tend to run to the exits all at once.  I don't know if this is the start of a run or not, but the setup looks like it could be. 

I was able to find a better way to look at corporate cash flow on FRED.  Here is the chart.

Cash flow peaked in 2011 Q4.  Maybe that explains the decrease in the Capex line I talked about in yesterday's update.  I don't know if it is a problem that we have not set a new high in cash flow since 2011 or not.  That is supposed to be one of the best indicators of corporate health.  That likely reflects the fact that global growth never really recovered from the mini global stock crash in 2011.  The cash flow stalled going into the 2000 top and clearly turned down going into 2007.  I might need to keep on eye on this in the quarters ahead to see what happens.

There were some downgrades of trends in the trend table tonight.  Follow through will be key on whether we are really starting a pullback or not.  I have this feeling that a lot of people are sitting with their finger on the sell button, but were scared to pull the trigger for fear of missing out on future gains before tapering was complete.  I don't know if today flipped the switch to protect gains or not, but with the weakened technical position we are in it might have.  The VIX was up 32% today so lots of protection was being bought.  Even at that it is still low at 14.54.  It might not be high enough to really bring out the buyers yet.


No comments:


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