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Tuesday, February 3, 2015

Daily update 2/3 Negative rates

With the help of rising oil prices and central bank easing (Australia) the bulls showed up again today.  Here is a look at SPX.

Today was another news induced move with nothing fundamental that I can see.  It may be subject to being retraced as many news moves are.  I find it funny that people were cheering the rise in the price of oil today.  Wait a second, I thought the drop in the price of oil was unequivocally good.  How come the rapid rise the last three days is not unequivocally bad?  Markets just plain crack me up sometimes.  SPX closed above the 50 DMA.  Will it get confirmation this time or turn back down once again?  I can't remember the last time I saw a daily chart this goofy.  The breadth was a very strong 76% positive.  That is two pretty strong days in a row.  Similar to the 1/7 and 1/8 bounce.  They sold it the next day on down to new lows.  What will they do this time?  There were 188 new highs and 13 new lows.  The drop in new lows is a positive if it lasts.  However, the new highs were barely higher then yesterday's 180.  After having over 200 for that last two weeks that was not a great showing.  Lets have a look at the futures chart.

The futures ended the day above the 100 SMA again.  The last two times that happened we never got a confirming higher close bar.  We did see some probes higher before turning back down though.  Will the sellers show up again or is it different this time?  The 200 SMA is in the same area as the 100 so this is a key resistance area.  My idea of not being in a hurry to buy a gap up today played out nicely as we got a low below the open in the middle of the day from which the market race higher.  My best guess is that people will sell much harder then today if there is an upside gap tomorrow.  The mantra seems to be buy the dip and sell the rip.  This was quite a rip.  There has to be some temptation to take profits by short term traders.  Lets take a peek at the breadth chart.

SPX climbed up the upper trend line of the triangle today.  I have read stats that say a third touch of a trend line gets a reversal around 67% of the time (not sure how accurate that is, but odds are pretty high).  That was the case at the low which was also a third touch.  The McClellan oscillator is once again overbought.  That is very odd when yesterday morning we were at a 6 week low.  What this chart says to me is that if we reverse here from this short term overbought condition we are likely to break the lower trend line.  We should have roughly a 67% chance of that being the outcome.  With the 200 SMA being so close to the lower line we would probably end up going through that as well.  Breaking the upper trend line should target new highs.

There was another upside surge in the last hour.  We have seen quite a few of those lately, but in both directions.  It seems kind of odd.  I guess it is just showing the uncertainty going on.  People are piling in or out based on the days news.  I can't remember seeing that kind of environment near the highs being a good thing.  However, we could always end up testing the highs once again I guess.  Here is a table showing how the NAAIM survey has shown the ups and downs of active money manager's long exposure.

Quite a bit of volatility in this survey since the mid Dec. pullback.  It has been down in the 60s and 70s and back up in the 90s.  I was surprised to see the number back up to 92 last week with all this volatility.  The lack of caution seems rather interesting.  These money managers are essentially fully loaded on the long side.  If we turn down again they could add to the downside momentum considerably.  The next couple of days will be important.  Do we reverse here or head to the highs?

The short term trends of all indexes are back to neutral (I am getting tired of changing the table every couple of days).  The resolution of the daily SPX triangle should give us a bigger trend move then what we have seen lately.

This is a pretty interesting article on the European debt situation.  Bonds: Caught in a debt trap  This chart is in that article that is inexplicable.

We saw U.S. 3 month T bills have a negative rate during the 2008 crisis.  However, that was nothing compared to what is going on in Europe.  That is something like 1.5 trillion Euro denominated bonds with negative rates.  Some countries have 5 year bonds like that.  Clearly something went haywire in Europe last year.  There is just no normal explanation for this.  Some people are scared to death of something.  Exactly how bad are things in Europe?  This chart suggests a major crisis worse then 2008 is happening now.  That is a head scratcher.  Don't be surprised if things start blowing up over there some day.


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