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Monday, December 15, 2014

Daily update 12/15

They did not waste any time selling into the gap up this morning.  The selling in Europe was much more intense then in the U.S.  Here is daily chart.

SPX dropped briefly below the 100 SMA this morning before dip buyers stepped in to stem the tide.  It closed slightly above that MA.  In the prior bounces of the 100 SMA SPX always closed below it first.  Breadth was 73% neg.  and the TRIN was 1.5.  While the selling was broad based it was not exactly panic.  There were 34 new highs and 359 new lows.  The new highs that low show buying enthusiasm has waned considerably for the moment.  Today's price bar does not look like anything that would be part of a low.  There might be more to go.  Lets see what the futures chart looks like.

The futures are trying to find support around the 200 SMA.  That might be a better place to bounce from then we had at the close on Friday.  The -DI line is still above the ADX line so there is work to do before a lasting bounce is likely.

Wed. is another FED meeting.  As noted a number of times in the blog the market has started to gap up the day before instead of the day of the meeting.  I actually heard them mention that on TV today.  If that becomes widely known that pattern may change as well.  We are currently very oversold in the short term which could add some fuel to a bounce tomorrow.  Tuesdays have been the strongest day of the week all year.  The action this afternoon leaves us better set up for a bounce day.  There could be a few dip buyers show up as we hit the 100 DMA.  I don't think I would read too much into a bounce if it occurs.  With the VIX weekly close above its 200 SMA last week some caution is in order.  We could be in a VIX spike that has further to run yet.  A bounce might be short lived.

It turns out VIX spikes in Dec. have been pretty bullish.  From http://fat-pitch.blogspot.com/2014/12/weekly-market-summary_13.html#more  I found this gem. 

When these spikes in Vix have occurred in December, they have been especially favorable to equities. Even a 34% spike off the low has led to a positive return by month end every time this has occurred; this implies a close over 206.5 in the weeks ahead

There are a few other items in that article trying to make a case for a bounce for the next few weeks.  It makes sense.  That is what the market usually does.  The air waves and printed media have been saturated with all the bullish things going from seasonality to the election cycle to year 5 of the decade.  Its almost like nothing else could possibly happen.  Therein lies the problem.  How often does the market actually do what nearly everybody thinks it is going to.  When it doesn't do what is expected by most is when trouble starts.  I don't know how this is going to play out.  If it does not find a bottom this week it could get ugly as liquidity will be thin over the holidays.

I see a lot of don't worry be happy along with the world is going to end articles on the oil price drop.  I have seen a lot of people expecting the drop to be fairly short lived.  The truth is nobody knows how this is going to play out.  There are way too many variables to deal with.  The only thing I can say for sure is that the lower the price goes and the longer it stays there the higher the stress will be in the credit markets.  There is over $500 billion of risky loans riding on the price.  A large number of defaults will cause problems well beyond the junk bond market.  OPEC is now talking about oil in the $40 dollar range not causing them to cut back production.  I don't know what the odds for major economic disruption are, but there is certainly potential for trouble.  It might be a good idea to keep abreast of your investments and the situation.


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