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Tuesday, January 12, 2016

Daily update 1/12 Sell everything?

The bulls managed another positive day.

While SPX closed positive the breadth was actually -52%.  New highs were a paltry 17 while new lows came in very high once again at 568.  SPY actually closed slightly below the open.  Not exactly a strong day.  The sellers started in about 9:45 and kept hitting the bids until about 2:30.  There was a late day rally that got them a little excited on TV.  Those kind of moves are not particularly reliable for futures market direction though. 

The futures sold off right after the 4 PM close.  They have come back a little bit now, but are still lower.  They closed back inside the lower Keltner channel.  Often that means they will contact the 20 SMA next.  At the moment that is at 1954, but is dropping fairly quickly.  The futures look like they are bounce mode.  Lets see if the bulls show up again.  They might have a little better luck tomorrow if they apply bullish pressure early in the day.

Despite the extreme short term oversold condition this bounce is not getting off to a strong start.  That does not mean it won't carry higher thouugh.  We are still in the oversold category.  With any luck we can get some up this week and create a good short setup.  The risk reward on new shorts here is pretty poor. 

This story is making the rounds, but in case you missed it.  RBS: 'Sell everything'

Writing in the UK Telegraph today Ambrose Evans-Pritchard says Andrew Roberts, and the interest rate strategy team at RBS, has advised clients to, “Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”

There have been warnings from many of the big banks lately.  That is on top of a number of billionaires warning also.  In Weighing Bull And Bear Cases After Ugly Week For Markets I found this little snippet.

Bullish Case
  • Stocks are now in oversold territory based on relative strength readings and other technical metrics.
  • The CBOE VIX Volatility Index (VIX) has reached a similar area (peak) where it was turned back in December 2015.
  • The CNN Fear and Greed Index is registering extreme fear, which I can also confirm in the majority of my conversations with individual investors.
  • Labor statistics show a continued strong pace of job growth and low unemployment readings.
  • Many major banks and asset managers have come out with recent warnings to underweight or exit U.S. stocks. It is rare to see this level of concern this close to the highs.
  • Pension and mutual fund assets are sitting on some of their highest cash levels in years.

The first three bullet points are really short term in nature and are irrelevant to a long term bullish case.  The employment data is a lagging indicator so it is not really useful in real time for investment  decisions.  The last two bullet points are rather odd to have in this list.  Is a lot of pension plan investment professionals sitting on extra cash really a bullish thing?  During the last two 50% crashes most pension funds were seriously hurt.  Maybe they are being more cautious this time.  Many retail investors complained to their money managers and the major brokerages that nobody warned them of trouble.  The market is clearly in terrible technical condition.   It really is obvious the market could be in very big trouble.  Is it out of the question that those who got yelled at for not warning before are now warning?  


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