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Monday, October 12, 2015

Daily update 10/12 More on Zwieg breadth thrust

Holiday snooze fest.

Intraday volatility was very low on this Columbus day quasi holiday.  With the market overbought at resistance a pause here makes sense.  Whether that pause turns into a top or not remains to be seen.

The futures are just hanging around the important 200 SMA.  No decision yet. 

Now that the bulls have driven prices up to resistance they are waiting to see if earnings can justify the higher prices.  We will start to get a clearer picture this week as earnings season really starts to kick in. 

We had a VIX close over 40 during the mini meltdown.  In that scenario a VIX below 20 with price below the 200 DMA is rarely if ever a good thing.  With the VIX in the low 16s I think it is probable the rally will end around here.  This could be a very bearish setup.  I have already stated after everybody piled back into the market that a true test of the Aug. low probably has low odds of being successful.  I think this ultra low VIX makes that even less likely.  This is a sign of complacency.  Complacency in a downtrend is a bad thing for bulls.  If we turn down from around here the Oct. 2014 low around 1820 looks like a probable target.

Here is an article by Tom McClellan on the Zweig breath thrust sent in by a reader (thanks).  Zweig Breadth Thrust Signal  It shows charts of all signals since 1928.  There are a lot more bad signals then I imagined.  Well worth a read.


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