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Thursday, February 26, 2015

Daily update 2/26 NAAIM survey fully loaded and more on earnings

That was a rather mixed day.  IWM and QQQ were relatively strong while IYT and XLF were weak.  Lets take a look at SPX.

The doji bar yesterday was followed by a hanging man today.  David Elliott called this combination “The Shanghai Duo”.  It is a little known and rather rare pattern that sometimes marks significant turning points.  Volume increased again today.  Looks like back to back distribution days here.  I think that means we should definitely pay close attention.  As with any pattern downside follow through will be key.  Here is a look at the futures chart.

The futures tested the 18 SMA and held today.  However, the bounce stopped at the 6 SMA.   That leaves us in limbo.  Will the bulls show up and pull the iron out of the fire again?  Will the bears pounce now that we have a possible short term topping pattern?  There is only a 5 point range between the two MAs so one of them is likely to get broken tomorrow.  Notice the DI lines had a negative crossover today.  This is the third cross on this rally.  The last two were bounce crosses where the futures bounced immediately after the cross and got a positive crossover again.  Will that happen again or will the bears get control at least temporarily?

The power is up for grabs here.  The bears are trying to get a grip.  If we follow through on the downside tomorrow we should be in pullback mode.  The bulls have to prove they can conquer SPX 2020.  We know there was resistance there.   Oil had a weak day, but is still within its recent trading range.  More weakness tomorrow could be a damper for stocks.  It has been very volatile so no telling what it will do.  Just something to watch out for.

The latest NAAIM survey shows the active money managers are fully loaded.  Here is the chart.

At 99 this week it is in the stratosphere.  It has not been this high since late 2013.  From outright panic in Oct. to fully loaded on the long side now.  When the survey gets this high the market usually struggles on the upside.  The fuel gauge is low.  If some kind of catalyst causeing widespread selling emerges the down side has plenty of fuel.

Here is another look at the earnings picture discussed in yesterday's update.

This is a look at the 3 month change as opposed to the 6 month change I showed yesterday.  This chart covers one more recession.  The result is the same in that the change has never gone this negative in the last 35 years without there being a recession.  As the economic data has often missed expectations lately it is best to keep an open mind. 

What a difference a year makes.  About this time last year there was lots of bubble talk and some were talking about the possibility of a 15-20% correction.  Today the talk on TV was about the market melting up.  The only bubble talk was about reassuring us that the COMPX (approaching the 2000 high) is surely not in a bubble this time.  One blogger I read spent all last year talking about all the signs of a top and went short in the spring.  After holding short the rest of the year he covered those shorts on this break out.  There just aren't very many bears left in the world.  It is simply a given the market is going to keep going up.  A lot of people are going to be surprised if it doesn't.  The fundamentals appear to be crumbling right in plain sight.  I think this is what finally gets the bears to capitulate.  When the market keeps going up in the face of poor fundamentals they give it up.  Of course that is usually about the time the bull market ends.  There are lots of things wrong here.  It is not a given the market is going to keep going up.  Stay on your toes.


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