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Friday, February 13, 2015

Daily update 2/13 Everything is wonderful

Buyers were not scared off by Friday the 13th.  Lets have a look at SPX.

SPX closed 3 points above the Dec. high.  Breadth was a pretty good 60% positive.  Volume dropped from yesterday.  That was true on SPY as well.  New highs expanded to 203.  While decent that was still lower then back in Jan.  I noticed we are pushing into the 2012 trend line again.  I have no idea if that will be resistance or not.  SPX is getting pretty extended from the 18 SMA again.  If you look closely you will see that the MA is slightly lower then it was when were up here in Dec.  Will they show up to keep pushing price?  Here is the futures chart.

There was a bit of a dip in the afternoon.  The dip buyers pounced on that and drove prices higher into the close.  People were not excited about pushing price.  They only come in when there is a dip.  Once price makes a new high everybody stops until the next dip.  While we can always keep going up in that manner the problem comes if there is a reason to sell.  All those hesitant buyers that know they are taking a risk buying here could easily turn into sellers.  Price is extended from the 18 and 50 SMAs on this chart.  To push prices higher people will have to be willing to buy that short term overbought condition. 

Historically the next week is a soft week for the market.  We are short term overbought so that could come into play.  There were a number of indexes making new highs today.  Notably absent was the transports and financials.  They have been lagging on this rally and they lagged again today.  We have not pushed enough higher to allow for a retest from above to be successful.  The bulls need to keep this thing going or this retest will be a failure.  There was a lot of happy talk on TV today.  Toward the end of the day I was told the new high means everything is fine and just keep on buying.  In fact buying now was a big theme in the afternoon.  I did a little searching on Russell2000 tops.  I found a few articles back in Sept. proclaiming a major top on the index.  I could not find anything since the Oct. low and bounce back.  There is no shortage of optimism here.  The technical condition is still riddled with problems.  I guess we will see what happens on this retest. 

All the happy talk on TV today proclaiming this is a great time to buy had me remembering back in time a little bit.  Lets take a big picture look at the last 20 years.

One thing that has been very consistent throughout market history is investor perception.  People assume everything is great when the market is soaring to new highs.  People also think things are terrible when the market is tanking in a major bear market.  Markets overshoot in both directions.  Reality is not as good or as bad as the markets would have you believe sometimes.  I know for absolute certainty that the economy is not nearly as good as the 2007 top.  That top was not nearly as good as 2000.  Interest rates tend to track up and down with economic growth.  Never have rates been this low all around the world.  I know with absolute certainty that everything isn't wonderful.  The bond and commodities markets already know that.  What I don't know is how long before the stock market figures that out.

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