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Friday, October 17, 2014

Daily update 10/17

Hmm, what is up with IWM.  Most indexes were up over 1% and IWM ends in the red.  The last few days it had been showing some relative strength.  To reverse that today might not be good.  Here is the daily SPX chart.

SPX almost touched 1900 before turning back.  Today it gave a technical exit to the buy signal marked with the green arrow.  Notice price is still below the high of the signal bar.  Most of the time that happens it means we are going lower.  Usually when it closes over that bar's high it will keep going.  The McClellan oscillator closed positive today.  This means SPX has cleared the short term oversold condition in both price and breadth.  If we turn down again we could easily drop below the recent low.  Maybe we need to test that April low.  Lets take a look at the futures chart.

We got a green price bar this morning.  Since the Sept. peak green bars have brought on the sellers again.  Will it be different this time?  With IWM red today on a strong up day for most indexes I think the bulls still need to prove themselves.  The current price pattern does not look very bottom like to me. 

For next week we are in the tough call zone.  We could run up to test the 200 SMA or we could roll over right away and head south again.  SPY hit the hourly 50 SMA today and stopped dead in its tracks.  Be nimble and be quick.  If you can't be nimble you might want to sit on your hands.  If we head down again it is likely to get really wild.  We have not had a 2% down day yet, but that might be coming.  This afternoon's low (1877) might be a good sign we are rolling over again if broken.   The key support is 1814-1820.  If we continue up watch that 200 SMA at 1906.  If we get above that we have the 1912 level mentioned below. 

Here is an interesting article CBOE Total Put/Call Ratio Highest In Four Years. What Happens Next?
He researched put/call readings over 1.5 and here is the table summarizing the results.

First of all there are not many instances with only 6 samples.  However, the returns going out in the future are not good.  The 3 month time frame is the only one with a positive average return and more then 50% of the time SPX was up.  The dates are in the article if you care to look them up.  I took a look at SPX and I found the shortest time the market recovered and started moving up was about a month.  In most instances the high of the day of the signal provided stiff resistance.  Sometimes it took a third test to break through it.  In this case the signal was on 10/13 and the SPX high that day was 1912.  I would expect that to be pretty stiff resistance on the first test.  Lets take a look at the NYSE bullish percent chart.

This sell off absolutely hammered this market internal.  This is the lowest it has been since the sell off in 2011.  With this much damage the market will need some repair time before it could establish an uptrend.  The odds of yet another V bottom run to new highs from this condition are probably near zero.  Any bottom that forms will need some time.

The market and sector status pages have been updated.  Have a great weekend all.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.