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Tuesday, December 9, 2014

Daily update 12/9

Interesting day.  The laggard of the year the small caps were up over 1.7% while one of the leading indexes this year the transports was down .59%.  SPX closed down just fractionally.  Here is the chart. 

The futures had a big gap down on world news, but money managers were not in a mood to sell after the open.  Money started moving into small caps right away.  I guess people got scared the world might go to pieces so they moved some money into U.S. small caps.  There were 111 new highs and 252 new lows.  Despite the big gap down the number of new lows dropped from yesterday.  Another indication people did not want to sell into the weakness.  Breadth ended up 56% positive.  This was the kind of day that frustrates the bears and makes the bulls feel safe.  I have seen it do this before only to drop like a rock.  That really pisses off the weak shorts that covered along with the people that rushed in to buy the dip.  I have also seen it rocket off to new highs and cause the shorts that did not cover today to drop some F bombs.  Lets take a look at the futures chart.

The -DI line crossed above the key 35 threshold this morning.  This opens up the door to a bigger decline.  It does not necessarily mean the bears will step through that door.  It makes today's low very important.  A close below it and the selling is likely to pick up considerably.  Notice today's bounce came from the 100 SMA.  At the moment we are still below the 50.  That is in the indecision area for future direction.  A failure to recapture the 50 could lead to more selling.  What does IWM have to show us.

The world events caused a move of money to the safety of bonds, gold, utilities and good old U.S. high risk small cap stocks.  For today I guess people were thinking the U.S. will continue to outperform others.  That was some bounce from the neckline this morning.  However, IWM is still in the trading range of the last few weeks.  Will the bulls show up and break it out to the upside?

What happens now?  I have seen days like today just be a quick flush and on to higher prices.  I have also seen them be the start of a big decline.  Was this a watershed day or just water under the bridge?  I don't think it is safe to say it was nothing just because we rallied all through the day.  We still have the fact the market has been showing huge negative divergences since July.  I think the power is up for grabs here.  Which side steps up to the plate?


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