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Tuesday, August 26, 2014

Daily update 8/26

SPX manages a close above 2000 (2000.02 to be exact) for the first time ever.  Sometimes you just have to laugh at the totally random market.  Here is the daily chart.

Another miniscule volume day.  The last two bars have upper tails indicating there is some resistance at the round number.  We had 184 new highs which is better then yesterday, but nothing to write home about.  Is that because the big boys are all on the beach?  The low volume certainly suggests there aren't many traders around.  On the downside I will be watching a drop below the July high of 1991.  That would indicate a failed break out and could bring in some sellers.  Lets see what the futures chart has to say.

The futures have been crawling up the trend line lately.  They ended the day just above it and right where they opened at 9:30.  They are currently trading slightly below it in after hours, but we will have to see where they are tomorrow.  A confirmed break of that line should indicate we are in a consolidation/pullback phase.  The gains the last two days have all come from the overnight gaps as the futures ended the day right where they opened.  That leaves SPY with double doji bars with very narrow ranges at all time highs.  That would seem to indicate some indecision here.  Will that indecision turn into decisive buying or selling?  IWM had a strong day and is now clearly above its 50 DMA.  This is a positive as long as it keeps pushing higher.  Lets have a look at the RTH weekly chart.

Last week RTH broke out to a new high after trading sideways since last year.  I find this move a bit peculiar.  It came after all the earnings reports were already out.  The break out day happened right after Dollar General inserted itself into the merger discussion going on between Family Dollar and Dollar Tree.  I suspect the break out was on investor merger mania.  Will the break out stick?  If it does there are plenty of beaten up retail stocks that could benefit from the interest in this sector.  That should also be a positive for the broad market.  If it fails that could be a negative sign for the economy in general.  I will be watching this one to see what happens.

I am sure everybody is familiar with the seasonally weak Sept. to Oct. period for stocks.  That means that SPX is littered with July and Aug. highs.  This particular break out to new highs has come on the lightest volume all year.  SPX is only 9 points above the July intraday high.  It is easy to see how this new high could reverse in Sept. into a significant pullback.  Especially with QE coming to an end.  I have thought all along the market was not going to wait until the meeting that officially ends QE to sell off.  A normal market would be more likely to sell off and bottom around that meeting.  There are still lots of market internal divergences hanging out there.  This is a time to pay close attention to what happens.  A sharp reversal in Sept. is possible. 


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