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Tuesday, August 19, 2014

Daily update 8/19

A little more up.  Here is the daily SPX chart.

SPX got within 10 points of its intraday all time high.  Breadth has been strong on this rally, but the volume has been totally absent.  Still no sign of any selling pressure whatsoever.  I guess everybody has caught on to the game of the 100 SMA bounces.  No need to take profits until we make new highs.  Now that the pattern is so obvious one would have to expect it will end soon.  Usually it ends about the time I discover it.  Lets have a look at the futures chart.

The futures stopped at a line that was resistance a couple of times back in early July.  I don't know if this is significant or not.  When this close to the high people can get a little nervous about chasing price.  That is really a pretty straight up move.  People are certainly afraid of being left behind.  Now we wait and see what happens.  The market may mess around here a little bit while it decides what to do.  The SPX 50 DMA is still the pivot on the downside.  All the sellers seem to be on vacation lately.  Maybe they stay there the rest of the month if nothing bad happens.

Here is something a little different.  This is a ratio of the corporate bond ETF LQD and the junk bond ETF HYG plotted against the Dow. 

We only have a few years of history on these ETFs so the study is somewhat limited.  However, we can see that in general when the ratio is rising the volatility in the Dow tends to be low and upward progress is significant.  When the ratio is falling or going sideways the volatility in the Dow tends to be higher and upside progress more difficult to come by.  The ratio has been falling since late last year and once again the Dow has struggled on the upside.  However, we have not really seen an increase in volatility so far.  The current move down looks like the longest one yet without a significant pullback in stocks.  Does that mean the pullback is yet to come or it won't happen this time?


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