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Wednesday, October 8, 2014

Daily update 10/8

I guess the entire world situation changed in the middle of the day.  I don't think this was a dead cat bounce.  Here is the daily SPX chart.

SPX tested the 10/2 low and apparently there were buyers sitting there waiting as we V bottomed out of there.  After the FED minutes were released the market flew up even more.  I suspect a lot of that was short covering.  We now have a bullish engulfing bar and a solid close back above the 100 DMA.  It looks like the 2011 trend line is going to hold for now.  The breadth was 76% and there was a considerable volume surge.  That looks like a pretty convincing bottom doesn't it.  I would think the shorts will be running for cover now.  Lets see what the futures chart has to tell us.

That was quite a wide range bar today.  Notice it stopped at the 200 SMA. How does a totally random market keep doing things like that?  I think it will get through it without any problem.  The DI lines nearly have a positive cross.  It won't take much more upside for that to happen.  This looks pretty bullish.

The bulls hit the bears upside the mouth with a right cross.  It looks like they will be forced to retreat to me.  This was clearly a technical rally as buyers were sitting at 1925.  SPX V bottomed both times it hit 1926.  There was very little time spent down there.  I can't tell if selling was truly exhausted.  All I can say is there were dip buyers just waiting.  Will the sellers be waiting up at higher prices somewhere?  That may all depend on how the earnings data looks.  While the 100 DMA bounce pattern played out differently this time it looks like it is back on track.  Are we headed for a test of the highs?  Follow through is key of course.

Here is an interesting chart.

The MSCI world index has broken its uptrend line from 2012.  This could be early on in a global correction.  With QE ending this makes logical sense.  Some people have been buying the dips simply because of QE.  Are some of those people taking profits now?

This is an interesting article on SPX and recessions.  The S&P 500 and Recessions

Here is a great paper on market tops.  THE WARNING SIGNS OF MAJOR MARKET TOP S
I talk about new highs all the time because they are very important.  Here is a snippet.

In the present case, the largest percentage of U.S. stocks rising to new 52 week highs occurred in May, 2013. Since that time, each new high in the S&P 500 Index has been accompanied by a smaller and smaller number of stocks listed on the NYSE Exchange as well as the NASDAQ, rising to new 52-week highs. The important point here is, history shows that persistent, multi -month periods of a shrinking number of stocks making new 52-week highs can only be found during the final stages of old bull markets. Thus, as the original study noted, the persistent... "contraction in new highs serves as a gentle reminder that all Bull markets eventually come to an end".

I knew that we had an extreme low number of new highs prior to the last two bear markets.  What I did not know was if there were historical instances of that happening to a bull market where it did not go into a bear market.  I wondered if it somehow could get re-energized instead.  What Lowry's research shows is that is not the case.  We have the technical conditions that have preceded bear markets in the past.  Will it be different this time?


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