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Thursday, November 19, 2015

Daily update 11/19 Swap spreads

Anybody awake.

A narrow range doji day.  SPX tested yesterday's high several times today. but the buyers could not overcome the sellers.  Too soon to tell if that is important yet or not.  Breadth was nearly dead even.  New lows still outnumbered new highs 84 to 53.  Was today the pause that refreshes or a short term top?

Overnight the futures got well above yesterday's high.  However, they sold of some before the open.  They never got back anywhere near the overnight high after the market opened.  As I was writing this I realized I need to pay more attention to that condition.  I have seen a number of short term highs and lows made where the futures were higher/lower then SPX ever got during the trading day.  I tend to notice them when SPX tests its highs or lows and the futures still have a ways to go to test their extreme points.  Now that I think about it I have seen enough of those that there may be some clues about future price action.  I need to pay more attention.

The bar counts are close together with the red count slightly higher.  Since they are this close together this is a neutral condition.  Another sign the market has worked off the extreme short term over sold condition.  A downside thrust day probably sends us back to test the recent low.

Last night I mentioned SPX was in the .618-.786 retrace zone.  This is the most common place to make a lower high.  The indecision today makes sense.  While we have seen some strength it looks like this market could still roll over pretty easy.  We have seen many strong upside thrusts this year roll right back over.  I would think crossing back below the 200 DMA again would invite considerable selling.  A break out above today's high should target the Oct. high.

Lately I have been reading about strange things happening with swap spreads going negative.   I have never studied the bond market so I have only a rudimentary knowledge and it does not include swap spreads.  However, I can read a chart.  There is some info and this chart in Swap Spreads Just Hit A New Record Negative Low: Goldman's Explanation Why

Clearly things have been different since 2008 then they were before.  I have no idea why that is.  Lately it is clear that swap spreads have been crashing and a couple more of them are now negative.  I don't know what this means or if it is a serious problem.  That article is pretty long and somewhat technical I need to study it a bit.  I only bring this up because I have read a  number of pieces from bond market people that indicate they are worried about it.  Quite frankly some of them seem to be kind of panicky.  The only thing I know for sure is that anything negative in the bond market is abnormal and is usually a warning sign of some kind.  The bond market has a history of being an early warning sign to many crises in the past.  This may be yet another warning of something wrong.


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