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Friday, August 29, 2014

Daily update 8/29

SPX makes a new all time high close by a whopping 2 points.  I saw the USA Today had an article on the front page of the money section proclaiming we were on track for the biggest Aug. gain since 2000.  I am sure that sounds very good to most people.  However, those familiar with market history know that was the final high before the bear market that took the NDX down 80% and SPX nearly 50%.  That was an example of why the saying that past performance is not necessarily indicative of future results was invented.  We all know we had a stock market bubble then, but what about today.  From what I can determine we have more bubbles then ever before.  Interest rates are at the lowest levels in all of history in some places in Europe.  While we are currently not at historical lows in the U.S. we are at levels lower then all of history before the last few years.  There is literally no asset class to invest in that is valued in a way to generate good long term returns.  Warren Buffett was holding $50 billion in cash at the end of June.  Back in 2000 he was complaining about having $18 billion in cash because he could not find good opportunities.  He must be beside himself now.  Why do you think one of the best investors on the planet has the biggest cash hoard by far he has ever had?

SPX is really struggling with the 2000 level.  Here is the daily chart.

This still looks pretty toppy to me.  The volume remains at unbelievably low levels along with the intraday range.  There were only 33 new SPX highs today despite the new high close.  That is really pitiful.  The monthly chart is rather interesting.

This month was a bullish engulfing bar touching both trend lines of a rising wedge pattern.  Notice the volume.  May, June and August all had rising prices on noticeably light volume.  In any kind of triangle pattern including wedges the volume is supposed to fall as price nears the apex.  That is clearly happening here.  As SPX broke out to new highs in May the volume dropped 20% from April.  The Aug. volume was down 33% from April.  If the volume does not pick up soon there will be more layoffs on Wall Street for sure.  There isn't much room left between the lines.  Breaking the lower line is likely to increase volatility considerably.   Lets take a look at the futures chart.

Last night I said the price bar turning green might mean the consolidation phase was over but needed follow through.  While the futures traded above the high of that bar they never closed above it.  In fact they actually ended the day below that close despite SPX being higher (remember the futures popped after the 4 PM close yesterday).  So we have no sign the consolidation phase has ended.  We actually reinforced the phase with more red and white bars.  The 18 SMA has gotten up here to the point the futures will either break out to the upside or fall below it soon.  Which will it be?  Lets have a look at the IWM chart.

IWM had a thrust bar the other day which stopped right at the .618 retrace level.  It has not been able to conquer that line yet.  Will it or won't it?

What will the big boys do next week when they get back from vacation?  Will they pile in above 2000 or take some money off the table?  They were really crowing today about  how great Aug. was.  However, SPX ended up 12 points (a whopping .6%) above the July high.  That certainly sounds like something to crow about, LOL.  Neither the Dow nor the transports closed above their July highs.  We never had even one day above 200 new highs.  Technically this looks very much like an important top forming.  I will be watching that key 1991 and 1886 levels going forward.  I think the market needs a clear thrust above 2000 with signs people are piling in to change the technical picture.

The market and sector status pages have been updated.  Have a great weekend all.


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