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Tuesday, November 4, 2014

Daily update 11/4

I guess two doji bars were not enough, we need three.  The plot thickens.  Here is the SPX daily chart.

This morning's dip found support at the 2012 trend line.  However, the bounce from that line was not strong enough to get the market positive.  There were 220 new highs and 75 new lows.  Obviously the number of lows is way higher then it should be at this point.  The new highs are good, but need to stay above 200.  Lets see what the futures chart looks like.

The recent bar closes are staying in close proximity to each other.  It won't take much to turn the bars red or green from here.  There really is not much clue of what is to come.  It looks like a perfect equilibrium.  Yesterday the market tried to extend the rally and failed.  Today it tried to pullback and failed.  We are going to have to wait and let the market make up its mind.  This is a very important decision to make.  Continue the bull market or start a bear. 

The media has really been pushing the bullish story here.  Unless you are sleeping under a rock you have probably been reminded that Nov. starts the most bullish six months of the year.  Don't forget the 3rd year of the presidential term is the best for the market and of course it is always up and away after the mid term elections into year end.  While the historical patterns are true the setup into the 3rd year of the presidential cycle is quite different this time.  Here is a good look at the history.  Year 3 of The Presidential Cycle Is Unlikely To Go The Way Everyone Expects  It seems like every time they make a big deal about a seasonal pattern it fails to work.  They made a big deal over the sell in May thing the last two years, but it certainly did not play out as normal.  I think this is the most mentions I have ever seen of any historical pattern ever.  If the market is going to perform as normal and go racing up why are the internals so weak.  I have shown the divergence in the advance-decline line, bullish percent indicator and the number of stocks above their 200 SMAs.  Here are a couple more indicators.  One is based on new high/low data and the other on volume.

These are very clear and distinct divergences.  However, all divergences can clear up if price keeps moving up.  They need confirmation from price.  These indicators tell us two things.  The first thing is the odds of a failure on this retest of the high are much higher then at any other time in this bull market.  The second thing is that a failure here is highly likely to signal at least a very deep correction if not a full blown bear market.

While SPX stays in the range of yesterday's high (2024) and today's low (2001) it is likely to be quite choppy.  A close outside that range should see follow through.  On the downside I would expect that would mean a return trip to the 50 DMA to begin with.  On the upside we have nothing but clear skies.  If this market is going to head higher I think it needs to pause here for several more days to let the shorter MAs catch up a bit.  We are still extremely extended.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.