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Thursday, January 14, 2016

Daily update 1/14

Bulls strike back.

Finally got an oversold bounce.  SPX dipped down into the support zone this morning and rebounded strongly.  Breadth was +65%.  That was pretty good, but not really good enough to suggest a lasting bounce.  Volume increased so I would guess a lot of shorts covered.  New highs dropped down to 7.  Yes, 7.  New lows came in at 699.  Price is still stretched.  Will the bulls come back again to play?

The futures came within 1 point of the 20 SMA before selling off a bit at the end of the day.  At the moment we appear to be consolidating at lows.  This could continue to be a bit jiggly here.

The green count got pretty low.  The red count indicates we are clearly oversold.  The market can stay that way for days though.  At any rate the bulls would have some work to do to get control back.

I suspect yesterday had a lot to do with margin call selling.  However, the magnitude of the move down might have triggered even more margin calls.  I have no way of knowing that.  If that is the case then the sellers may come out tomorrow to sell into today's bounce (especially if we gap up).  If there was no big surge in margin calls the buy the dip crowd may show up thinking the bottom is in.  I suspect the odds are with the sellers showing up because they showed up a bit at the end of the day.  Pretty hard to predict in this volatility though. 

I cannot stress enough how important this test of the Aug. low is.  Making new lows more then six months from the high is usually not good for bulls.  A number of important indexes have already done so.  In this particular case the market was so straight up in 2013 there is little in the way of support below here.  As they say all hell could break lose.  My guess is a break down would end up sending SPX down to the area of the 2000 and 2007 tops (1550-70 area).  There should be good support there for a bounce.  Because this is such an important test I would think the bulls would put up a fight.  We could see some back and forth as the battle wages on.


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