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Tuesday, October 14, 2014

Daily update 10/14

The bulls are trying to make a stand here.  Lets see what the daily SPX chart looks like.

The futures started out on the upside and rallied even further early on.  However, the afternoon sellers returned once again and drove SPX down below yesterday's low before rebounding.  With a double bottom in place between today and yesterday the bulls might find it easier to rally the market tomorrow.  Volume was heavy once again showing it was not a lack of selling that kept the market from going down more.  There must have been some buying interest.  Lets see what the futures chart has to say.

We now have three bars inside of yesterday's crash bar.  The futures are up slightly as I write this and have the current bar white if they close here or above.  We have stabilization at least.  There is quite a bit of room for a bounce if the bulls show some force.  We should be oversold enough to tempt some dip buyers.

I don't know if this is a pause to go lower or a pause to reverse.  It looks like the bulls are trying to make a stand here, but too early to tell if they will overrun the sellers.  For the moment there seem to be plenty of  people looking to sell strength.  There has been considerable technical damage.  Check out the number of stocks above their 200 SMA chart.

We are now down to around 30% of stocks above their 200.  That is the fewest since the mini crash in 2011.  This is likely to take some time to repair even if we bottom around this area.  There are many market internals that look similar.  This sell off is definitely more harsh then we have seen the last couple of years.

Tough to tell what happens here.  We are clearly oversold enough to bounce, but the sellers keep showing up on strength.  While there were enough buyers to hold the market up today the bulls have not won the battle yet.  SPX's 200 DMA is at 1905 and is a key line the bulls must overtake to get a bounce going.  The April low is the next support level if we keep heading south.

I have heard a couple of people (one being Art Cashin) talking about hearing about forced selling.  They were not clear on the who or the why.  I have heard some talk about some hedge funds that might be in distress.  The markets are highly leveraged with the so called reach for yield trade.  It sounds like that leverage might be starting to unwind.  In that condition oversold can become a lot more oversold.  The proverbial falling knife scenario.  You can't predict what will happen in a leverage unwind situation.  I think it might be a good idea to be a little cautious until we know more about what is going on.


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