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

Wednesday, July 2, 2014

Daily update 7/2

A nice big 4 point range on SPX today.   I guess most traders are taking the week off.  Here is the daily SPX chart.

CNBC is spending a lot of time on Dow 17000 watch.  Tomorrow being a holiday shortened trading day they might get it there.  That would make a great headline for the retail investor over the weekend.  Despite most indexes closing slightly green breadth was 60% negative.  That is a bit odd to be that negative.  New SPX highs dropped down to 42.  Needless to say there was not a lot of enthusiasm to buy today.  I think the key chart here is IWM.

The break out to new highs by SPX happened after IWM stabilized at the 200 SMA and started to rally.  It tested its spring high yesterday.  Does it make a double top or end up breaking out?  I think this is the key to what the rest of the market does.  If it can successfully break out it could light up another momentum phase to the upside.  Should it end up making a double top it will likely cause selling pressure across the board.  Keep your eyes on this one.

I keep hearing more and more people talking about a melt up.  Really.  Has anybody looked at a monthly chart of SPX lately.  What exactly do they think it has been doing for the last two years.  Earlier this year many people were calling for a correction or outright crash.  That obviously did not happen.  Now that the conversation has changed to melting up the odds of a correction could be going up.  Key European indexes have started to falter a little bit in the last couple of weeks.  That has not been a problem for U.S. markets yet.  However, if they keep falling it probably will be.  We should know more next week when more traders get back to work.  It seems likely tomorrow will be another sleepy day unless there is a shakeup from the employment report in the morning.

Yesterday I mentioned that Ron Insana on CNBC said that high valuations did not matter because interest rates were low.  Having studied actual market history as opposed to the junk put out by Wall Street I knew that was not true.  Check out this chart.

We can easily see in this chart that interest rates around where they are now usually see much lower valuations then we have now.  Today is an anomaly along with brief period in 1937.  After the 1937 top the Dow dropped about 50%.  We can also see that in over 130 years of history valuations have not been this high for very much of the time regardless of interest rates.  I realize it is a FED induced anomaly.  I totally agree with that.  What I disagree with is the feeling that the anomaly is now normal and will last going forward.  There is obviously a lot more to valuation then just the level of interest rates.  Ask the people in Japan what happened to their stock portfolios under ultra low rates.  Putting money to work here for the long term just seems like asking for trouble to me.  I guess we will see how it all works out.


No comments:


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