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Thursday, July 31, 2014

Daily update 7/31

I guess that settled that.  I have been talking about the weak market internals for weeks and it looks like they finally mattered.  Here is the daily SPX chart.

That was some smack down.  Breadth was 88% negative which was the worst since June 2013 during the so called taper tantrum.  Quite a bit of volume there also as they really ran for the exits today.  There were 102 new lows and only 30 new highs.  That is the most new lows since the Feb. low.  Lets take a look at the futures chart.

The futures dropped straight from the 100 SMA to the 200.  This is a logical place to bounce from.  We also have a short term oversold condition.  It may just depend on whether there is anymore bad news overnight.  A bounce back up to the 100 SMA might provide a good short entry.  SPX closed right on the low of the day.  Most of the time a gap up will retest that low before any meaningful rally begins.

The dip buyers came out as they have been to load up on the gap down.  However, they really got run over today.  I would say that was the most selling pressure since last summer.  I have always suspected this bull market might end like it started with a big gap that went unfilled.  I have pointed out how we have all the usual things that happen at bull market tops.  The only thing we lacked was the topping pattern.  IWM has an obvious pattern.  SPX has a topping pattern also.  It may be one not commonly known about.  I used to have a PDF that described a top and bottom pattern that I can't recall ever reading in a book.  Unfortunately I can't seem to find it.  SPX fits that pattern if it ends up breaking the April low.  We have the technical diverges normally found at bull market tops.  We have had three 90% down days since last June.  It is entirely possible today was the kick off of a new bear market.  We will have to watch how the market reacts in the days ahead.  It might be just a blip, but we have some serious warning signs.  I don't think this is a time to be complacent.  Needless to say I had to adjust the trend table tonight.


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