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Thursday, September 25, 2014

Daily update 9/25

I guess it was a dead cat bounce yesterday all right.  Sometimes looks are not deceiving.  Here is a look at the SPX chart.

SPX broke down from the multi week trading range and ran right smack into an important trend line.  That line goes back to the Nov. 2012 low.  That low was the acceleration point of the big move up in 2013.  It is a key trend line to say the least.  The TRIN was over 2 today at the close which can bring out dip buyers.  The price bar is blue so it closed below the lower Bollinger band and is extended.  We have a pretty deep oversold condition with the McClellen oscillator.  Breadth was 81% negative and the downside volume was around 90% of total volume.  Some people were running for the exit today.  There were 18 new highs and 194 new lows.  Lets see what the futures chart looks like.

The futures found resistance at the 18 and 50 SMAs as I mentioned they could last night.  They ended up trying to find support at the key 200 SMA today.  The -DI line crossed above the key 35 threshold.  I have been calling this a sell warning.  It is kind of like the famed Hindenburg omen.  Every big sell of from bull market highs since the beginning of my futures data in 1998 had a +35 reading early in the decline.  The trouble is that more often that same +35 reading will mark an important low.  It is a clear sign to pay attention.  This may be a good buying op or a time when you might wish you had hedged or reduced long exposure.  What  happens in the next few days around this low will be important.

This is an interesting juncture for the market.  SPX is at a key trend line in an oversold condition that could bring out the buyers.  Any bounce that occurs needs to be very strong to be sustained.  We had way too many new lows at the highs and all the big divergences I have been talking about for weeks now.  A weak bounce would very likely get sold into at some point.  If the bulls have the will to push this thing higher they need to prove it right here, right now. 

Since we closed on the low today a gap up is likely to test that low again.  If the buyers come in at that point it would be a good sign a bounce might be on.  A gap down that gets bought right away and sends price back above yesterday's low might also work as a bullish sign.  If we open flat then price needs to get above yesterday afternoon's high.  SPX's 100 DMA is just a little lower at 1954.  That is the next important support level below if we fall through the trend line.  We have bounced off that 100 DMA six times already since May 2013.  No pullback from the highs has fully ended until SPX closed below that line.  Since we have not done that yet a rally from here to new highs would be a case of it is different this time.  If we end up breaking the 100 and keep going it would also be different.  I believe that action would cause a mini crash as people panic for real.

I heard a guy on TV saying that people get scared on these little pullbacks, but then relax when the market rallies again.  He was saying that behavior is bullish for the market.  I believe he is wrong and here is why.  I think most people that experienced both bear markets do not trust the market.  I have heard many people say they are not going to go through that again.  These people are long the market though.  The data also shows that to be true.  It is not that people don't trust it and are sitting out.  What we really have is thousands of people long the market with profits that have decided they are not going to ride out another crash.  This is why retail investors seem to panic on these little sell offs.  They are looking for the end of this rally so they can get out with profits in tact.   This is not a situation we had in either of the two prior bear markets.  Most everybody was still thinking buy and hold.  Despite the Wall Street pundits telling all of us to be good little bag holders I don't think that will be the case.  Is my perception of what people are thinking wrong?

This is a pretty interesting read Future Bull.  Here is an interesting chart showing yet another valuation metric.

No matter what you look at stocks are not cheap.  There is a lot more stuff in that article and I think most people will find it thought provoking.


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