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Monday, January 4, 2016

Daily update 1/4

That is an unusual way to start the year off.  Friday the ban on 5% ownership selling in China ends.  I guess some people did not want to wait around and see what happens.  In case you have not heard they instituted some trading curbs in Dec. I believe.  Apparently they close for the day at -7% which was triggered.  Who knows what happens tomorrow.  Maybe they go oops we are sorry, and extend the ban.  At any rate world markets were all affected.  Europe worse then the U.S.

SPX tested the Dec. low and held.  The breadth was -68%.  New highs actually rose a bit to 50 while new lows picked up quite a bit to 143.  SPX is below all the key MAs on the chart.  However, there was a significant bounce off the lows.  I removed the green ABC pattern as that appears not to be the correct interpretation.  I added some green trend lines because there is yet another possible interpretation of this chart.  It might be forming a bull flag pattern.  If this is a bull flag I think it best rally from here and not hit that lower trend line again.  Another hit would make it look more like a downtrend channel.

The futures survived another trip below the support line.  Eventually they are going to have to go up for real or support is going to break.  The futures got a little extended from the 20 SMA today before the bounce.  Last year they did not like getting too far from that line.  That made for a lot of chop.  I hope this year is not going to continue that lack of trend all year.

The red count shot up today, but is not oversold like it was in Dec. when SPX bounced from this same area. 

The MCO went negative today, but the 10 DMA lines did not cross yet.  There is no oversold condition on this chart like we had in Dec. either. 

Like the price chart the green/red count and the breadth charts are a bit confusing.  If one wanted to be bullish one could say we are at the Dec. lows with positive divergences in both breadth and the red count.  If one wanted to be bearish one could say we are back at support with no oversold condition to cause a bottom here which would increase the odds of breaking down.  Which is it?  To go up from here the bulls have to be willing to step in and buy and push prices higher because they want to, not because we are oversold.  They lacked that desire the last half of 2015.  Will they suddenly get it in 2016?

I have no idea what is going to happen with China.  Will the government step in again and make sure the market rallies tomorrow?  I suspect that may have been why people were buying late in the day here in the U.S.  A little speculation the government will do something positive.  That has been the pattern, but can you count on them.  Stay tuned.


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