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Wednesday, September 3, 2014

Daily update 9/3

SPX barely holding on to 2000.  Here is a look at the daily chart.

The futures gapped up to new highs this morning, but the selling into strength started immediately.  After crossing below 2000 buyers stepped in and caused a bounce.  Later in the day that bounce rolled over to new lows.  Once again the buyers stepped in.  At the close SPX was fractionally above 2000.   There were 197 new highs.  Breadth was slightly negative yesterday and slightly more negative today then yesterday.  Volume increased again today.  That would suggest a bit of distribution the last two days.  After the all time high close of 2003 SPX has managed to close lower two days in a row but still be above 2000.  Amazing.  Lets take a look at the futures chart.

The futures price bars turned green again overnight, but once again no follow through.  They ended the day right at the 18 SMA.  Looks like we are still in consolidation/pullback mode here.  Lets have a look at the all important IWM chart.

IWM had a bearish engulfing bar.  The high was just about right in the middle of the .618-.786 retrace zone.  It ended the day a little below the .618 line.  If IWM is going to make a lower high this is the most common place to do it.  If it follows through on the down side in the next day or two that could be the case.  For SPX to continue higher I am pretty sure IWM must play along.  I guess we will see.

There is obvious resistance above 2000 as sellers come out on strength.  So far the dip buyers have stepped in to hold the market up.  I suspect that has a lot to do with ECB expectations.  Will they do enough to conquer 2000 resistance?  What happens if they disappoint?  We will find out what they  do in the morning.

Here is an interesting chart from John Hussman that shows the reach for yield that everybody keeps talking about.

The numbers back in late 2006 and 2007 were considered very high at the time.  That was nothing compared to the action since 2010.  I often hear people say there is nothing to worry about with high yield because the default rate is low.  I remember them saying that in 2007 as well.  Of course the default rate is low.  There is such demand now that any company getting into trouble just does another deal and pays the debts with the new money.  This will only be a problem if demand stops and there are no more deals.  That would probably take some recession fears for that to happen.  Right now nobody is worried.


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