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Friday, March 6, 2015

Daily update 3/6 Six year annualized returns

That was the splat from the slow creep up pattern.  Some things remain the same I guess.  Here is a look at SPX.

There was some volume for you.  No doubt what investors had on their mind today.  Let me out!  The breadth was -83% validating the run for the exits.  New highs dropped way down to 64.  New lows spiked up to 63.  Since the pattern of bounces off the 100 DMA started in the summer of 2013 breadth readings this negative (except for one instance) have meant the rally was over and the next pullback to the 100 was started.  The lone exception was in Dec. of 2013 when the FED announced the end of QE and the market rallied to new highs after touching the 50 instead of going to the 100.  I am quite sure that was a manipulated event to make sure the market did not crash.  I think odds are pretty high the 100 is where we are headed.  There should be support in the 2064 area for at least a short term bounce.  That is the double top from earlier in the year.  Any bounce there should lead to a short op.  Today turned the short term trend in all indexes down.  No need to rush in on the long side for any longer term positions.  There should be more downside to come.  Lets see how the futures chart looks. 

The futures contacted the 100 SMA this afternoon and bounced a bit.  The -DI line barely touched 35 the other day, but it is leaving no doubt about the selling pressure today at 41.  Personally I would not normally hold overnight any index swing long position until that -DI line crosses back below the ADX line.  The only exception to that would be a high volume extended down day with a high TRIN of at least a 3.  Today it closed at .85 so this is unlikely to be any kind of long lasting low.  I suspect a bounce on Monday morning will find some very willing sellers at some point before the day is out.

Interest rates have been moving up a bit the last few weeks.  Most interest rate sectors have been hit pretty hard.  Check out IDU and IYR for instance.  I commented last night that a strong jobs report might convince people the FED would raise rates sooner then later.  It looks like that is what happened today.  Since bonds, the dollar index, and interest rate sensitive sectors have already been moving in that direction I don't expect people will rethink that idea very easily.  I think this was just the rest of the stock market jumping on board with that idea.  There was considerable technical damage done.  I think there will be plenty of sellers on bounces.

This is a pretty interesting chart.

There are only 5 instances going back to the mid 30s of 6 year annualized returns over 19%.  I am sure you know what happened after 1987 and 2000.  The 1938 instance saw a 50% crash.  The 1955 instance is the only one that is different.  The market went up into 1957 about another 6% from the 1955 high.  It then had a 19% correction late that year before resuming the uptrend.  That 6 year run was at the beginning of the secular bull market that ran from 1949-1966.  That likely explains the smaller pullback.  There are people that think we started a new secular bull  market in 2009.  If that is the case we should not be in for a big crash just because of the magnitude of the returns.  As you know I don't subscribe to that theory so I expect a bigger crash once again.  The market needs to prove to me it can get through a bear market without a huge crash before I jump on the secular bull market bandwagon.  Should that happen I will be a raging bull if you can imagine that.

To me this last rally to new highs was very feeble.  At the same time there seemed to be a lot of raging bulls.  The current sentiment and technical condition of this market is what normally happens right before a bear market starts.  We have crumbling earnings projections and possibly a crumbling U.S. economy as well.  There is no doubt the global economy is weakening fast with so many central banks lowering rates.  Some multiple times in short order.  The transports and financials did not make a new high.  The Dow did and that leaves us with a Dow Theory non confirmation.  The Feb. lows are now extremely important.  Should both the the Dow and the transports break their Feb. lows we would have a Dow Theory sell signal.  Given the current environment I would take that as a very strong signal we are starting a bear market. 

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


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