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Monday, October 27, 2014

Daily update 10/27

Consolidation day.  Transports were strong and oil stocks were weak.  Here is the daily SPX chart.

The bears attempted to send price lower on overnight news, but the bulls bought the dip.  We now have two closes in between the 50 and 100 SMAs.  There were 114  new highs (up from late last week) and 59 new lows.  That is quite an elevated number of lows.  We were in the 20s late last week.  Most likely due to more downside in the oil patch.  This is in no mans land here.  Add long and SPX fails at the 50 just above.  Short it and it blasts through.  I suspect it may take some time to decide here.  It seems likely we will get a close above that 50 SMA at some point before truly rolling over.  That would get the bulls excited and give the bears more strength to sell into.  Lets see what the futures chart looks like.

At the moment the futures are up a bit from the 4 PM close.  I mentioned last night the market has been gapping up the day before the FED meeting for quite some time now.  It appears to be following that pattern again.  Unless we get some bad news overnight we should open up.  What happens after that I have no idea.  Do people chase this rally further or not? 

There was enough strength in this rally that it might not dissipate immediately.  We could easily pullback for a few days and still push higher again.  However, there are instances where strong rallies like this roll over and really tank.  I am not familiar with any instances of this much technical damage rocketing off to new highs and beyond.  There has always been some backing and filling work to do.  Sometimes that backing and filling ends up making new lows or even crashing.  I think this is going to be tricky.   The FED meeting on Wed. will end QE, but what does the market do.  Almost everybody believes that will happen.  One would think that would mean not so much reaction.  However, I have witnessed the FED doing exactly what everybody expected and the market still reacted in a big way.  That is a wild card.

Oil is consolidating after a mini crash. Does it make a bottom or is this a pause to go lower.  If it goes lower oil stocks will probably head further south also.  I have seen some data lately that suggests Saudi Arabia has plenty of money set aside to weather $80 oil for years.  They seem to be behind this move down.  Nobody else in the world appears to be cutting production.  Doesn't this seem like a recipe for lower prices in the short term?  Over the longer term it depends on how much the lower prices stimulate global demand.  Art Cashin has been saying that oil below $80 is bearish for stocks.  We are in that area.  I guess we will see what happens.


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