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Thursday, September 11, 2014

Daily update 9/11

Wall Street started off with a somber tone remembering 9/11.  I think that kept market action rather muted all day.  Here is a look at the SPX daily chart.

SPX ended with a slight gain after starting with a gap down.  Once again breadth was only marginally positive.  There were only 43 new highs (13 in SPX).  With SPX only 10 points below its all time high close that is a really odd stat.  We have not even broken the 18 SMA yet.  Looking at those numbers you would think it was a down day and was trading around 50 SMA or below.  So far this two day rally looks like a dead cat bounce.  Will it catch fire or roll over?  Let see what the futures have to say.

The price bar turned green again today indicating the short term oversold condition from the blue bars has been worked off.  Every other time this month the bar has turned green the sellers showed up again.  Will that happen this time?  Key support has been holding, but the bounces are not very strong.  Now that we have a green price bar I suspect that support line will break if tested again.  If we are going to test the highs again I think we need to rally strongly tomorrow.  IWM showed relative strength today for a change.  Lets take a peek at the daily chart.

While IWM showed some strength today it stopped right at the .618 retrace line again.  Is that line going to hold as resistance or do we break through this time?  I sure wish I knew the answer.

Do we roll over or test the highs from here?  I kind of think we might get that decision tomorrow.  Given the weak start to this rally I don't have a lot of confidence that a retest of the high would be successful and lead to further gains.  We are going to need a good strong day and blast out to new highs.  I am not sure what it would take to make that happen.  As I commented the other night the news flow is actually pretty good lately.  One thing that might be a worry to some investors is the rally in the dollar.  Slow moves are not a problem, but this rally has been very steep for the dollar index (over 5% since July 1).  That move has been particularly acute against the British pound and the Euro which account for a large share of our exports.  That will have a negative impact on foreign revenue. 

I often hear the Wall Street pundits compare the current situation to 1995-96.  They do this to try to convince us there is lots of upside left.  I will leave out the valuation situation which is quite different this time.  Lets look purely at price.  Here is a chart of SPX in 1995.

After crossing the 100 SMA in Jan. of 1995 it never touched it again that year.  In fact it rarely even hit the 50 SMA.  That was a strong pattern.  No doubt about it.  Lets look at the current rally.

Most of the time SPX has made marginal new highs then sold off to the 100.  Only off the Oct. and April lows did the market really zoom past the prior high.  Does this look the same to you?  It doesn't to me.  This doesn't look nearly as strong of a pattern.  Not all uptrends are created equal and I don't think these two are the same.  The 95-6 rally saw a lot more gains.  Do we also get that from here?

Today's strength in the Russell2000 has upgraded the short term trend back to neutral from down.


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