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Wednesday, December 31, 2014

Daily update 12/31 What was that all about?

With no negative overnight headlines the bulls bid up the futures a bit in the night session.  However, they were already drifting lower before the open.  The bulls never really got going.  Here is the daily SPX chart.

I added the ADX indicator for tonight.  There was a cross of the DI lines today.  With the pattern of bounces off the 100 SMA this is the earliest the cross has happened by far.  Is the bounce over already?  SPX ended Dec. down for the month.  That is pretty rare.  The famed Santa rally is in the red.  There is still two trading days to go in that pattern.  We will see what happens, but so far it is not looking like the bulls are all that ambitious.  The breadth was 62% negative so the selling was broader then yesterday.  Lets see what the futures chart looks like.

The futures almost made it down to the 100 SMA today.  The DI lines have a sharp crossover.  The -DI line is 31 so it is not far from the key 35 level.  The ADX was unusually high for a rally.  A high ADX usually means the high or low will be retested.  However, when a true reversal happens from a high ADX it can be very sharp.  That is a sign the market is catching everybody on the wrong side.  If the bulls don't show up to buy this dip on Friday things could get nasty in a hurry.  IWM was interesting today.  Lets take a look at the chart.

IWM had a key reversal day.  That happened on a retest of the highs from March and July.  As I mentioned previously just about everybody is expecting this to go up.  If it follows through on that reversal it could be quite significant.  The oddest thing today was the VIX.

There was a rather large VIX divergence at the highs.  That is why I have been saying the VIX may be telling us the market is about to get more volatile.  The VIX has not been spiking up this high in such close proximity for the last two years.  It was up 20% today alone.  That has to be an extremely odd occurrence for the last trading day of the year.  It is back up above the weekly 200 SMA once again.  If it is still there on Friday we could be in for another spike higher to start off Jan. with.

I want to look at a couple of market internals tonight.  The first is the common stock advance/decline line.

Interestingly this indicator made a new high on this rally.  Some would say that cleared up the divergence.  In a way it did, but SPX was about 5% higher then it was in July when the divergence started.  While this indicator made a new high it probably was not commensurate with the size of the move in the index.  The other market internal indicators did not even come close to new highs.  Lets look at the number of stocks above their 200 DMA.

This clearly has not repaired its divergence.  The bullish percent indicator has the exact same shape.  Those two super strong breadth days around the FED meeting helped the breadth indicator tremendously.  However, they were not buying stocks strongly enough in general to push many of them back through their 200s.  Market internals continue to suggest we are making a bull market top.

The last day of the month is not a particularly good indication of what is going to happen on the first day of the next month.  Quite often the market does a 180.  However, the first few trading days of a year after an up year can experience tax selling as people book profits they did not want to take at year end.  That happened this year.  If the selling continues on Friday it will turn the short term trend of SPX and the COMPX down.  I would be pretty leery of buying into a gap up.  Especially if it was only a few points like it was today.

I want to wish everybody a very happy, healthy and prosperous new year.  I think the motto for next year is "be nimble".  These V bottoms off the 100 DMA have been easy money for over 18 months.  The market just never makes it that easy for long.  I think that is about to change.


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