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Tuesday, June 30, 2015

Daily update 6/30 Transports

We got the expected bounce, but there was some significant selling into strength.

Because of a rather large overnight gap up (on  nothing that I could see) SPX started out the day in the 2070 resistance area.  Sellers took hold immediately and sent SPX down for a test of yesterday's low.  That low held and SPX bounced back into 2070 resistance and again sold off.  Breadth was 60% positive.  Not too bad.  However, new highs were a paltry 23.  New lows remained high at 238.  SPX did not touch the 200 SMA today.  I don't really like consolidations just above an MA like this.  It seems like most of the time they go through the MA then either reverse or keep going.

The futures show a clear consolidation here.  Both support and resistance held today.

July is historically the strongest of the summer months for stocks.  However, the kind of weakness we had in the internals before this decline usually lead to a bigger decline then we have had so far.  Because of the potential for a mini cascade down I don't think it is wise to rush in on the long side.  I think it is time to play it safe and let the market give us a sign it is ready to go up.

Lets take a look at the monthly chart for DJ20.

The transports ended June with a close below their 20 SMA.  That is quite a precipitous decline especially considering the rest of the market hasn't done anything like that.  It has been down four months in a row and six of the last seven.  Kind of hard to make an argument the economy is getting better even though the pundits are trying.  Something seems amiss.  The selling may be a little overdone in the short term.  It would not be surprising for this index to find support around here.  If it doesn't then the economy could be in much worse shape then we know at this moment.  To get out of trouble we need to see a really strong bounce within a few weeks though.

When I updated the monthly data in the market status page I noticed we now have 5 out of 10 red monthly charts.  We have not had that many red charts since the big sell off in 2011.  Another reason for a little caution here.


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