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Thursday, August 21, 2014

Daily update 8/21

SPX closes at a new all time high.  They were really crowing about that on TV today.  I had to laugh a bit.  The close was fractionally above the 7/24 intraday high.  So in almost a month SPX has gained less then 1 point.  I think that is certainly something to get excited about.  Here is the daily SPX chart.

That sure is a straight up move.  Will it last?  Some moves like this are kick offs to new legs higher and some are blow off moves that get largely or completely retraced.  Given the lack of volume and divergences that abound I lean towards this being a blow off move.  Lets take a look at the futures chart.

 I marked the former high in this contract with a support line.  Will old resistance become support?  That is only about 4 points below today's close.  Not much room to work with at the moment.  The market needs to push higher before we get a pullback to have much chance here.  Today was like pulling teeth.  It looked like a real struggle to gain any altitude. 

Yesterday I mentioned the market could pullback and take off again.  Now that we have made a slight new high a pullback becomes much more problematical.  This is an aggressive retest as the 18 SMA is still below the 50 SMA.  That makes the market very stretched in the short term.  Chasing a market in that condition is pretty tough and historically there are lots of times when people didn't do it.  I think it probably takes good news.  That is one thing that is hard about looking at historical SPX charts.  While the chart can look a lot like some other instance the news flow at the time can be radically different.  This rally looks like just another bounce off the 100 DMA with a complete lack of selling along the way.  I don't think it is fundamentally driven.  While the breadth is strong the volume has been very light.  Now we are at the moment of truth with SPX at the high.  Will they chase it or will they sell it?

I have read a number of things lately that seem to indicate a lot of people are expecting Yellen to be extremely dovish at the Jackson Hole conference.  She speaks tomorrow at 10:00.  I have noted the extreme lack of selling on this rally.  Could that be why?  I find this kind of interesting and odd.  All the talk coming out of the FED recently has been about how soon to raise rates.  Are people hoping she will say not any time soon or something?  Most of what I have seen from this conference in the past has been a lot of talk about monetary theory and little or nothing about the actual current situation.  Last year the conference was mostly about how ineffective QE is.  I would not be surprised if her speech has absolutely nothing to do with what the FED will do in the near future.  I wonder if there is a chance the market gets disappointed by what she does or doesn't say.

Something is different this time.  Here is the latest NAAIM investor survey.

This week's survey was 56 which was up only slightly from last week's 50.  For the last two years we can see that every pullback to the 100 DMA has seen a big surge in the survey coming off the low.  This survey has normally been in the 70s or 80s by the time new highs were reached.  Something would seem to have made the big boys a bit nervous this time.  What that could be is hard to guess as there are numerous things that might be causing it.   This survey would seem to validate the idea this rally was not fundamentally driven.  While we have seen two lower peaks in this survey already this year those peaks were well over 80.  That is not the case at the moment.  That makes this test of the high in SPX very important.  If we turn down again with investor confidence this low they may be more apt to sell.  At the very least they might be less apt to step in at the 100 DMA as they have been.  Watch this retest closely.


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