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Wednesday, September 9, 2015

Daily update 9/9 Research on SPX and its 200 DMA

Last night I wrote "The breadth data has positive crossovers across the board.  We have worked off the extreme oversold condition in the McClellan oscillator.  In fact it is almost in overbought territory.  That can be a problem when the market is making lower highs.  We will have to watch closely if the market rolls over again."

For today it was a problem.

Since the big crash SPX has mostly closed in the direction of the mornings gap.  Most days the afternoon had a sizable move going that way even when the opening gap retraced a good bit.  No such move today.  It was selling from the get go.  After starting +77% the breadth ended at -68%.  Very strong selling into strength.  New highs increased some to 28, but new lows also increased to 58. 

The futures attempted to get above the upper Keltner channel this morning, but were met will selling.  They ended the day above the 18 SMA.  After hours they have slipped below it.  Quite the pretty W pattern since late Aug. 

Have we started the journey back to the Aug. low?  It is really hard to say since we keep changing directions so often.  We clearly have resistance that brought out the sellers when touched today.  However, we are still making higher lows.  The bears need to keep the pressure on and get below the 9/4 low (1911).  Until they do that the bulls could always show up again just like they have been doing. 

This article has some interesting research on returns on SPX relative to where it is with its 200 DMA.  S&P 500 200-Day Moving Average Is Pointing Lower, What’s Next?  Here is a chart with the few instances where the 200 DMA was rising for very long periods.

Returns after prolonged periods are not very good.  There is always a profit taking phase.  Sometimes more sideways then down and sometimes big down.  What will it be this time?


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