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Monday, August 18, 2014

Daily update 8/18

Another gap up, another go nowhere after the gap day.  Here is the daily SPX chart.

SPX completely filled the 7/31 gap down today.  Today's high was right at the .786 retrace level.  The upper 50 Keltner channel band is also right there.  Those look like the last two pieces of resistance between here and the all time high.  If things work the same as the last 5 bounces off the 100 SMA SPX should make a new high before closing below the 50 SMA (1957).  IWM closed above its 200 SMA, but just below its 50.  The COMPX closed at a new bull market high.  Will people show up to chase it higher?  I am not real sure of that.  Take a look at the number of NASDAQ stocks above their 200 MAs.

The spring pullback really took down their numbers.  The return to new bull market highs by the COMPX in June and July repaired some of the damage.  However, the recent sell off, though small in magnitude, really took down the number again. This is far weaker then it was at any point last year.  This is a pretty major divergence at the moment.  If the COMPX ends up turning back down this will look a lot like an important top. 

While SPX seems to be progressing back to the highs there are still some serious divergences hanging out there.  This is still time to take it one day at a time.  It seems like the futures gap up about 10 points any time there is no bad news.  However, the intraday range remains very narrow.  There is a lot of sideways action with occasional pops.  It still looks more like an absence of sellers rather than eager buyers.  That always presents a problem.  As long as no catalyst comes along to cause sellers to show up the market floats higher.  However, if sellers show up price can collapse pretty quickly because there aren't many buyers around.  Tread carefully.

Bespoke put a out a chart showing the average movement of stocks the day of earnings.  Check this out.

Stocks Down on Earnings Again

This is not just SPX it includes more then 2400 companies.  It is obviously rare for stocks to be down as much as they were this quarter.  Last quarter was even worse.  This happened after expectations were lowered considerably going into earnings the last two quarters.  It is interesting that there are so many quarters where stocks were treated really well on earnings over the last few years.  We have had 6 quarters in this bull market where the reward has been higher then the highest quarter (Q4 03) in the last bull market.  Analysts have been busy ratcheting expectations up for Q3.  I think this is the first time in a long time they have done that.  Will companies be able to get over the higher bar?  This chart probably explains why IWM is showing a lot of relative weakness to SPX.  The smaller cap stocks are probably skewing the averages.  Remember they were the most over valued as a group.  I don't know if this tells us much about the future direction of the market or not. It does explain why we are not flying up this year like we did last.


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