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Thursday, October 30, 2014

Daily update 10/30

Odd day.  Most of the move up in the Dow was caused by a single stock Visa (V).  The utilities were the strongest index today up over 2%.  The transports and the SOX were down big.  Here is a look at the daily SPX chart.

The ultra sharp V continues.  SPX hit the underside of the 2012 trend line and stopped.   Was this a kiss good bye or is there more upside to come?  That was a stupid question.  We all know the market only goes up.  Lets have a look at the futures chart.

Not much price action up above here.  Once again white price bars were met with buying.  That is one amazing pattern.  It looks like a down move only upside down. Sure looks like panic buying.  Panic selling rarely works out well.  I wonder how well panic buying will work.

The market has obviously been in runaway mode.  It will stop at some point.  Maybe here at the 2012 trend line.  Maybe not.  I liked this description from Dave Landry. 

"Speaking of breather, as I have been preaching, metaphorically, it is hard to run a new race after you have just ran a race–“V” shape recoveries at high levels are hard to sustain."

I think this is the sharpest V I have ever seen.  Now that we made it this far without ever trading below a prior day's low what happens when we do?  I don't think people are going to chase the move much past the old high.  This is really an unsustainable price pattern.  It looks a lot like a final blow off top though.

I found this chart rather interesting.

It would appear that the the dollar is rallying and oil is dropping because of global growth worries.  Notice the estimate for 2014 growth is down to 2.46%.  Growth below 2.5% is considered a global recession.  That could explain why many global stock markets are in much worse shape then the U.S.
Will that weakness pull the U.S. down or not?

Here is an interesting graphic from Bespoke.

Defensive sectors have been leading this rally.  The most economically sensitive sectors are lagging badly.  The big money has moved into defensive stocks.  Here is a look at the number of stocks above their 200 MAs.

During the sell off this indicator dipped down under 30%.  That is the lowest since the mini crash of 2011.  It remains to be seen if this is just a viscous correction or something worse.  It has rebounded now to 53, but that is still really low.  One more chart to look at is the bullish percent indicator.

That sell off was very damaging to this indicator also.  It has only rebounded to 49%.  Yet another indicator that looks toppy.

I happened to glance at the TV today and saw somebody talking about why the market was going to go up.  They had a big caption on the screen with the guy's name that said I am so bullish it hurts.  I kid you not.  CNBC really did that.  While this is not quite as euphoric as 2000 this environment is way more euphoric then I ever thought I would see again for decades.  This reminds me of the quote from the late Wall Street money manager Barton Biggs:

"A bull market is like sex. It feels best just before it ends.'

We have a market positioned defensively in very poor technical shape with raging bulls in the media.  Warning bells are going off. This is as obvious as a bull market top can get.  Keep in mind this is happening while we might be starting a global recession.  It could be argued the fundamentals might not be as good as the pundits would have us believe.   If this retest of the high fails, look out below.


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