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Friday, January 9, 2015

Daily update 1/9 Cumulative down gaps

That was a bit of a thud after the gap up on the employment report.  Here is the SPX chart.

SPX closed fractionally below the 50 SMA. In all the bounces from the 100 SMA since June 2013 never once did SPX close back below the 50 SMA before making new highs.  This is yet another thing that is different this time.  The market is changing its behavior.  I don't think it is going to be quite so easy going forward.  The fact they sold a gap up that hard on just the third day off the low is definitely way different.  People have been piling in and holding on once the market turned up from the 100.  Breadth was 61% negative.  That is somewhat broad based, but not excessive.  There were 174 new highs and 63 new lows.  That is a pretty good drop in new highs from 240 yesterday.  Lets have a look at the futures chart.

The futures ended the day below the 6 SMA.  The futures got above the 100 SMA, but never confirmed the move.  Instead they made a key reversal bar and confirmed the drop back below the 100.  That was enough to turn the MACD back down and cause the DI lines to form another negative crossover.  This looks like it is rolling back over.  If the bulls don't show up in force on Monday I think we test the recent low. 

After the initial sell off that took SPY slightly below yesterday's low the bulls put together a decent rally.  I thought they might have a chance to take control of the market, but they totally flubbed the last 45 minutes.  AA kicks off earning season on Monday after the close.  I have been hearing how earnings are supposed to be great from the pundits on TV, but have seen some articles that suggest maybe not as rosy.  Other then earnings from the energy companies being seriously crushed I don't really know what to expect.  Based on today's action maybe some market participants have questions also.  We could easily see increased volatility day to day depending on the overnight announcements.  I have to give the short term trends a negative bias on all three indexes as they all closed back below their 18 DMAs.

This is an interesting article.  Down Gaps On the Rise 

As one measure of market volatility, we calculate the cumulative number of stocks in the MSCI World Index that open at least 2% higher (or lower) than the previous close over a 65-day time period.  Extremes in the number of gaps often occur in conjunction with inflection points in the market.  As you can see in the following chart, we find that a very low number of gaps coincides with market highs while the number of gaps tends to spike during significant declines.

For the most part, down gaps reached decade-long lows in October 2014 and have been on the rise ever since.  The significant uptick in North America is particularly interesting--especially in light of what is, relatively speaking, a more resilient uptrend in the market.

Here is the chart for the U.S.  There are other charts in that article for the world.

Plunges in the blue line have coincided with the bigger dips in stocks.  We now have the biggest plunge since the mini crash of 2011.  This chart confirms what I have been saying that the market has become unstable.  The plunge in stocks may soon follow.

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


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