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Tuesday, November 18, 2014

Daily update 11/18

Range expansion to the upside.  This was the 23rd day in a row that SPX closed above its 5 DMA.  This is the second longest streak on record.  The longest being 26 back in 1996.  Needless to say it is a rare feat.  This is really strange price action after that sharp move down.  This truly is a unique point in time.  I can find no historical comparison.  Here is the daily SPX chart.

SPX clearly broke above the upper trend line.  Will it be able to stay there?  Breadth was 59% positive after starting out 67% early in the morning.  There was some selling into the strength in the afternoon even though SPX kept plugging away to the upside until late in the day.  New highs were 184 and lows were 38.  New highs have been under 200 for a while now which is quite weak.  The number of new lows has remained elevated which is also a sign of internal weakness.  Lets look in on IWM again.

While IWM was up today it failed when it tested yesterday's high.  It remains well below its 11/13 high.  Does it matter that it is lagging?  I believe it does.  I guess time will tell if I am right or wrong on that.

I saw this from Dave Landry this morning. 

Volatility waxes and wanes. Traders don’t agree for long. Large moves often occur after volatility compresses. Back when I did a lot of mechanical testing, I learned that the first move is often a false one out of a low volatility situation. With that said, brace for a big move but don’t be too quick to jump on just in case the market does a head fake.

It is true that many low volatility periods have a fake out move before moving for real.  This is a good candidate for that.  Along with IWM lagging the market internals still remain seriously divergent.  Price is quite extended with 23 straight days above the 5 DMA.  There has been no shake out move whatsoever.  What happens when some real selling pressure comes in?  It is going to happen some day (at least I think it will it).  On the downside I will be watching 2040.  That would put us below the upper trend line and back into the recent trading range.  This 2050 area could be resistance as half century marks have done that before.

This is an interesting article on SPY gaps.  What Happens To Open Gaps in SPY


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