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Tuesday, October 21, 2014

Daily update 10/21

We now have the definitive answer on the market.  This afternoon they were playing a clip from Jim Cramer saying an investable bottom is in and it is safe to buy stocks.  I guess there will be no retest.  It is onward and upward from here.  Lets look at the daily SPX chart.

They gapped it up and over the 200 this morning causing a massive short covering rally.  That sure is one funky looking chart isn't it.  SPX closed above the 18 SMA.  Just keep in mind that it is sloping downward pretty sharply.  In that condition crossovers are not as reliable.  It also needs confirmation of a close above today's high.  Breadth was a whopping 79% positive.  There were 75 new highs and 20 new lows.  That is the most new highs we have had since back in Sept.   Lets take a look at the futures chart.

We have blue price bars so price is above the upper Bollinger band and is extended.  The futures crossed above the 50 SMA today.  The 100 and 200 lie just a bit further up.  There are also a couple of old support lines that might be resistance just ahead.  Does any of that matter?

I have no idea what happens now.  This rally seemed to start the other day when some FED talk about not stopping QE came out.  The futures were actually in the red early this morning when news came out about the ECB buying corporate bonds.  That sent Europe soaring and the futures roaring.  Here is my problem.  The FED is going to end QE this month.  Did everybody forget Yellen explicitly said QE will end at the next meeting?  She can't possibly change now and still keep any credibility.  Here is a snippet about the ECB from CNBC.

U.S. and European stock markets moved higher Tuesday morning on a Reuters report, quoting anonymous sources, suggesting the European Central Bank may buy corporate bonds in the secondary market in an effort to fight deflation. The ECB has subsequently confirmed to CNBC that "the ECB has taken no such decision." 

Today's entire rally was based on an untrue rumor.  Shoot first and ask questions later.  Isn't that the trouble.  SPX has regained quite a bit of the down draft now, but based on false/misleading news.  How do we know that people won't start asking questions about how we got here?  How many news induced moves have we seen completely retraced?  I am sure today seriously flushed out all weak hand shorts (most likely with lots of F bombs).  That might not be a good thing if the market rolls over again. 

Today's move makes the charts a bit hard to pick something that suggests this bounce is over.  I guess as long as we stay above the 200 DMA we should be buying dips.  As the price pattern develops we might get something better.

The NYSE bullish percent and the number of stocks above their 200 SMA indicators show the most damage since 2011.  Here is a look at the new highs/lows chart.

I added a 50 SMA to both the highs and lows in the bottom panel.  This sell off caused a negative crossover.  The only other time we got such a cross in this bull market was in 2011.  That cross happened in Aug. just one day before a short term low.  The market chopped around before eventually testing the Aug. low in Oct.  It then resumed the uptrend.  The technical picture strongly suggests we should see that last swing low again.  I guess now that Cramer says everything is ok that won't happen though.


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