If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Friday, January 30, 2015

Daily update 1/30 Troubling coincident/lagging indicator

A lot of stuff of going on.  They came out and bought the gap down this morning like I thought they might.  The bears showed up at higher prices as well.  In the afternoon SPY made a new high of the day (HOD) and was slammed straight down to new lows.  Sellers are getting more aggressive it looks like.  We are either about to make a low or go tumbling down.  Lets see what the charts say.

SPX ended the day at the neckline of the bearish head and shoulders pattern.  There was a lot of volume today as both buyers and sellers were active at different times through the day.  I haven't seen that many changes of direction in a very long time.  Emotions are rising in both camps.  I have no idea what really caused the big gap down in the first place.  Europe was only down a little bit coming into our open.  At any rate we are at a decision point.  If the bulls are going to regain control I think they must do it right now on Monday.  Lets take a peek at the futures chart.

We are still above yesterday's low. There is still a chance we could hold here.  Just the way they sold rallies today makes me think that won't happen.  Maybe another central bank will pull out a stick save.  For now the bears still have the edge.  Lets see what the breadth chart looks like.

On top of the competing patterns noted above in the SPX chart there is also a triangle.  Both the 10 DMA breadth and volume lines have been positive for nearly two weeks.  The McClellan oscillator was positive most of that time as well.  We had large numbers of new highs at the same time.  Normally the market would be higher (often much higher) under those circumstances, but here we sit near the lows.  What gives?  This is a complete change of character from the last few years.  What I think this is telling us is that if we break down there will be quite a few trapped longs.  That could cause a mini cascade.  Here is a look at the SPX monthly chart.

This is the first time SPX has a white monthly bar since mid 2012.  That only lasted one bar.  However, in 2011 there was follow through on the down side that ended with SPX down over 19% from the high.  They were on TV at the close today telling us not to worry.  They made a point to mention the seasonal factors of the third year in the presidential term and year 5 of the decade.  That is all well and good, but 2011 was also a third year as well as 1987 (that should ring a bell).  It is not out of the question to see another big move down this year. 

The VIX.ended the week above its weekly 200 SMA again.  A rejection like that usually sees downside follow through some time in the next several weeks.  It is does not necessarily mean a big move down is coming on its own though.  At the very least it should indicate volatility is likely to stay elevated from where it has been for a while.  It should be noted that a VIX between 20 and 30 is not unusual.  There have been long periods of time where that was the norm.  We can't know if this is a regime change on the VIX or not yet.  However, it is a possibility to be aware of. 

SPX ended the week around support.  As shown on the breadth chart the 10 DMA lines still have a positive cross.  The bulls still have a chance to save the day, but I think they need to act on Monday.  They probably have to get price above the 50 DMA and stay there to truly get things turned around.  If the bears show up again a break of the Dec. low on SPX could set up a test of the Oct. low.  XLF is already below its Dec. low and closed below its 200 DMA today.  That relative weakness in the financials is usually not a good sign for bulls.  It might be leading us down.  Next week could be very interesting indeed.

I have been watching this chart for over two years and it just keeps getting more and more puzzling.

For 40 years the direction of these two pieces of data tracked each other very well.  One or the other might lead turns sometimes, but they always synced back up fairly quickly.  So what exactly changed since 2010-11 time frame?  The two series have gone in opposite directions since then.  This is an unprecedented divergence.  During this recovery the number of people on food assistance has grown nearly the entire time.  That makes sense looking at the red line, but not when looking at the GDP line.  Things just don't add up to the rosey picture the Wall Street pundits and the government would have us believe.  My contention is the U.S. economy is much more fragile then commonly believed.  Time will tell.

Today turned the short term trend of R2000 down to join the other indexes.

The market and sector status pages have been updated.  Have a great weekend all.


No comments:


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