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Thursday, December 31, 2015

Daily update 12/31 Odd up/dn volume in Nasdaq 100 index

Splat.  We ended the year just like last year selling off the last two days.  That made SPX down fractionally for the year.  What an ugly trading year.  We had low volatility and a choppy market.  I guess that is what happens when you have strong competing forces.  Remember we had the positive seasonal affect of the 3rd year of presidential term and year 5 of the decade.  Those two things had some people predicting a 20% up move.  However, we had never had 7 positive years in a row on SPX.  We still don't. The market acted like it was fighting itself all year long.  A few days ago I heard Art Cashin say it was the most difficult trading year he could ever remember (he has 50 years experience on the NYSE floor).  I don't think we have any particularly positive factors for next year.

SPX ended the year back below the 20, 50 and 200 SMAs.  Since Oct. SPX has crossed up through its 200 SMA 6 times so far and been unable to stay there.  That seems bear market like to me.  The breadth was -57% which was a bit light for the magnitude of the move down.  That suggests big cap stocks were the culprit today.  New highs dropped way down to 38 while new lows picked up to 47.

The futures have a confirmed break of the 20 SMA.  They held support at the 200 at least for today.  That may not hold next week.

The green count plummeted today, but the red count is still low.  The bears have more work to do to get full control.  Will the bulls come out and save the day next week?

The futures indicate the bears are trying to take control of this market.  However, they have not quite managed to do that yet.  Another down day on Monday would likely complete the task.  I would not be surprised to see selling in the big winners from this year like the so called FANG stocks.  That could easily infect the rest of the market.  There are so few leading stocks left on the upside people would notice if they all start falling apart.  So far the Santa rally is negative can the bulls pull off yet another miracle in the next two trading days.

This is an interesting chart and comments from Tom McClellan.

I mentioned that volume numbers looked even weaker, and this was true especially for the Nasdaq 100 stocks.  They saw 9-to-1 net declining issues, but 18-to-1 net down volume.

I hardly ever talk about the UV-DV numbers for the Nasdaq 100, because they are usually doing exactly what prices are doing. This year it is finally different, and in ways that I have not seen before. I have these data that I have calculated myself dating back to 1993, and this is much different behavior for this daily Up-Down Volume Line than I have ever seen. The divergences are huge, especially considering that it does not typically make divergences at major tops like 2000 or 2007.

It is tough to make an interpretation about the meaning of an event that has never happened before. But we know that divergences in other types of breadth indicators carry a negative meaning, and so on that basis it is not going too far to look at this situation and see trouble.

Negative divergences do not always mean lower prices.  However, when lower prices materialize in that situation they tend to be majorly negative.  I find it very interesting that there were no divergences noted in either 2000 or 2007.  Why now?  This is just another divergence to go along with the advance/decline line, bullish percent indicator, and other market internals.  Can a top be this obvious and still play out?  While it is technically obvious it is not obvious to the major strategists on Wall Street.  The USA Today ran an article today showing 2016 year end predictions from 17 firms ranging from +1.8% to +14.4%.  None of them predicted even a slight down year.  Unanimous bullish sentiment while the market is in the weakest technical condition I have ever seen with SPX just below all time highs.  Not to mention the fragile condition of the economy at the moment.  Nothing could go wrong here, could it.

This was an interesting tidbit from Shaeffer's research.  Indicator of the Week: Is Having More S&P Down Days Really a Bad Thing?  It includes this table.

The article poses the question whether having more negative days then up days is a bad thing.  The last three times it happened we were in a bear market that ended up a 50% meltdown in SPX.  In the bear market year of 2008 they were dead even.  They provided no evidence whatsoever that this condition is not a bad thing.  How many times have I commented on how 2015 reminds me of 2000?  This is yet another thing.

In Daily update Wholesale sale back in Aug. I showed a chart with rising auto inventory.   Despite auto sales being good in 2015 they have apparently been producing too many cars.  The Chicago ISM number which is heavily influenced by the auto industry and was extremely strong early in the year but had a huge miss today.


Throughout the entire history of this survey it has only been this low when the U.S. was in or about to be in a recession.  The auto industry is the last strong manufacturing sector in the U.S.  This reading suggests that sector is succumbing to the weakness seen everywhere else.  No way to put a positive spin on this.  Great time for the FED to be raising rates.

I don't like to make predictions about the market because it is usually futile to do so.  However, I will say this about 2016.  If next year ends positive for SPX it will be really surprising to me.  On the other hand, if SPX is down big it would not be surprising at all.  Entering a recession in the U.S. would also not be a surprise.  We are on the ragged edge already.  It would probably be more surprising if we do not go into recession.  A 15% drop in SPX would probably be enough of a shock to push us over the edge.

The market and sector status pages have been updated.

Happy New Year to everybody.  May it be a happy, healthy and prosperous year for you and your family.


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