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Thursday, November 12, 2015

Daily update 11/12


I saw this article today S&P 500 Above 200 Day Moving Average: A Bullish Sign?  The idea was to look over the last 30 years to find instances when SPX dropped 7-19% below the 200 DMA then moved right back above it for 12 days as we have just seen.  The author notes 1990, 1998, 2010, and 2011.  In each case SPX kept moving higher in the months ahead.  I hope he did not spend too much time on that research because today blew the pattern up.  In none of those instances did SPX close back below the 200 for many weeks at least.  In other words it is different this time.

We gapped down through the 200 SMA at the open.  Sellers were not anxious to sell hoping dip buyers would show up.  While there were a couple of periods of modest buying it didn't amount to much.  I guess by afternoon people got tired of waiting and unloaded.  The breadth was -80%.  New highs dropped way down to 23 while new lows increased again to 184. 

The futures confirmed the break of the 50 SMA this morning.  They are in the middle of nowhere here.  The next support comes in at the 100 SMA another 15 points lower.  The -DI line crossed above 35 once again like it has done so many times this year.  Just a reminder that was a rare occurrence between the 2009 low and 2014.  I believe it to be a sign of serious distribution.  I guess we will see how it all plays out.

The red count is getting into oversold territory.  However, it can get more oversold like it did back in Aug.  We are not over sold by any long term measure.  That rally relieved all the negative sentiment and severe over sold condition.  However, it was not as strong as the 2010, and 2011 initial rallies.

Here is the percent of the NYSE composite index stocks with their 13 EMA above the 34.  On the daily chart we peaked out at 68.  In the rallies off the July 2010 and Oct. 2011 lows this indicator got up to 79 and 81 respectively.  Those rallies were followed by pullbacks that made a higher low in Aug. 2010 and Nov. 2011.  I have several measures of strength and they all say the same thing.  This rally was not all that strong.  While it is always possible we make a higher low and are off to the races I don't see anything technically that gives us particularly good odds that will be the outcome.  In the few instances we have where the VIX dropped back below 20 before SPX got above its 200 we ended up going lower.  As a refresher I wrote about it in Daily update 10/19 IP and ECRI coincident index

"Take a look for yourself at SPX and VIX spikes above 30.  The only times you will find the VIX dropping below 20 while SPX is still below its 200 is during the two big bear markets of this century.  It is not normal for just a correction within a bull market.  This condition results in lower lows.  Will it be different this time?"
So the VIX indicates new lows are probable and the technical strength measures did not give us good odds of a higher low.  Taken together we should not be surprised if we end up breaking the Aug. low down the road.

Today clearly turned down the short term trends of all the indexes.  The internals were already negative well ahead of price.  With the close back below the 200 many people now have to really think about whether to hold or fold here.  In my mind the negative fundamentals clearly outweigh the positives.  I guess we will find out what others think in the days ahead.


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