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Friday, November 28, 2014

Daily update 11/28

Hmm.  Odd day for the day after Thanksgiving.  Here is the SPX daily chart.

SPX made a new all time high this morning.  However, it turned and ran from that high to end the day down.  Oil prices saw a big drop as OPEC did not announce any production cuts (as expected).  That is one thing I do not understand about the market.  Academics and the pundits are always saying how smart the market is.  It discounts the future they say.  There was ample information all week indicating there would be no cuts from OPEC.  Why didn't the market do more discounting ahead of time?  To me the reaction today makes the oil market look totally stupid.  There were 331 new highs and 164 new lows.  I would guess the oil patch produced most of the lows.  The expansion of new highs means the market felt pretty good this morning.  The day after Thanksgiving has a surge of retail investor trading as many are off of work.  We know the retail traders are very, very bullish so that makes sense.  I think the selling later in the day was the institutional traders.  Lets see what the futures chart looks like.

We ended the day with a red price bar.  There have only been two other red bars in this entire rally and neither of them saw any follow through selling.  Will that be the case again?  I guess that all depends on whether the drop in oil is significant to the broad market or not.  Lets see what IWM is doing.

IWM saw a severe bout of selling into the close and ended up down considerably.  This is starting to take the shape of a double top.  Follow through selling on Monday would be a pretty convincing bearish sign.  Got to watch this one next week.

This rally appears to me to have been driven largely by retail investors piling into the market.  They stayed bullish through the last decline while institutional investors panicked.  I can find no historical pattern that resembles the daily price chart.  That makes it hard to guess what happens next.  However, we have historical situations of retail investors piling into stocks while ignoring obvious risk factors.  That situation has never ended well that I am aware of.  That is exactly what it looks like to me.  The global economy is clearly slowing.  Relying on the U.S. economy to remain unaffected by that slowing seems to be very risky.  The global economy has been very much connected for two decades now.  We have a low volume, low volatility huge run up in the market.  Doesn't it seem like there could be an air pocket down below?


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