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Monday, August 4, 2014

Daily update 8/4

Expected bounce initiated.  Here is the daily SPX chart.

We started with a gap up that ran into some selling which took SPX back to negative on the day.  However, dip buyers showed up to rally the market the rest of the afternoon.  We ended with breadth at 60% positive and a big drop in volume.  There were 29 new highs and 70 new lows.  Not an especially strong start to a bounce.  At the moment it looks like a dead cat bounce.  We will have to wait and see if it catches fire.  Here is a look at the futures chart.

The futures reclaimed the 200 SMA today.  There is plenty more room to bounce.  Whether it does or not may depend on the news flow.  There certainly was not enough strength today to indicate we have made an important low.  There was quite a bit of technical damage done last Thursday so it is important for the bulls to show real strength.  Otherwise the sellers may come back after we work off the over sold condition. 

I don't think today told us much about the future.  I think it will take some work to repair the damage.  The Dow going negative on the year might not help much.  In a normal market it would seem the odds of a true 10% or more sell off are high.  Market internals seriously diverged in July unlike any other time in this bull market.  In the short term we are still over sold so more bounce seems likely.  However, this could end up being a sideways consolidation.  The VIX did not spike enough to hit its 200 week SMA.  The TRIN was oddly low last Thursday and Friday.  We might not be extreme enough to entice a lot of bulls to rush back in yet.

Here is an interesting article with comments from well known trader Mark Cook.  Stock trader who called three crashes sees 20% collapse  To be fair I do not know if Mr. Cook called crashes that did not happen.  This is the first time I have seen any comments like that in this bull market from him.  In keeping with the crash theme here is an article from Mark Hulbert.  3 market warning signs predict 20% stock tumble  I have read a number of articles from him in the past that have been very informative.  I am not familiar with Market Extreme's work that is  mentioned in the article.  I have not run across a good bullish article lately.  It is getting harder to make the technically bullish case at the moment with the deterioration in market internals.


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