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Thursday, October 29, 2015

Daily update 10.29

Another odd day.

While SPX was down fractionally IWM was down more then 1% and the SOX was down almost 3%.  The breadth was -60%, certainly not what one would expect on a "flat" day.  New highs dropped to 88 while new lows dipped to 42.  New lows are still way elevated for what we should see on a strong rally.  I heard this was the furthest away from the 50 SMA that we have been since May 2013.  That turned into the so called taper tantrum when Bernanke first mentioned tapering QE.  SPX pulled back to the 100 SMA and started the pattern of 100 SMA bounces that went on for the next couple of years.  This time we are not at new highs.  The 50 is below the 100 which is below the 200 MA.  SPX is massively overbought in a down trend.  With weakening internals on top of it.

The futures were in a very tight range since yesterday's explosion after the FED meeting.  One thing to note is that ADX is up to 36.  That is a very strong trend.  Most of the time that means the first pullback gets bought for a retest of the high.  Be aware that when it does a complete reversal it usually does so with vengeance.  You know how the market likes to catch the majority on the wrong side of the boat.  That happens most often when the current move is against the bigger picture trend.  That is our current situation despite many proclaiming we are still in an uptrend.

The current breadth chart shows how breadth has waned.  Both indicators are barely positive.  A negative breadth day tomorrow would give us a negative cross on both.  The volume lines crossed today.  This looks like exhaustion to me.  We saw that a number of times during the bull market and it could take quite some time before a pullback ensued.  However, in a downtrend the market usually responds much quicker.

The green count dropped under 40 today.  Not much holding SPX up now.  I don't think it can get any weaker and SPX keep going up. 

SPX tested yesterday's high multiple times today and failed to find any buyers up there.  I don't know if it is through testing up there as we have not pulled back yet.  It seems like it could be hard to find buyers up here without more central bank help.  I hope everyone realizes the last leg up was completely central bank propelled.  That is why the internals are diverging so bad.  The buyers are being extremely picky and are concentrating on a few big cap stocks like the Cramer named FANG stocks.  At the same time about 30% of SPX stocks are down 20% or more.  This is exactly how bear markets start.  While we have not seen any sign of it yet I believe there is a bunch of overhead resistance right here.  If the market starts down sellers may come out of the woodwork.  If SPX gets back below the 200 DMA many that bought on this rally are likely to bail and add fuel to the fire.  Lets see if the bulls have any gas left.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.