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Friday, February 19, 2016

Daily update 2/19

Another choppy pause day.  Buyers had a minor victory in the afternoon.

SPX rallied well off its low, but found resistance at yesterday's close.  The breadth was slightly negative again.  The new highs were about the same at 35, but new lows picked up a tad to 40.  SPY got in to the 2/17 gap up a couple of times today, but the bulls rushed in to defend the market.  I think we established clear support at today's low at least for the moment.  Breaking that low is likely to bring on some sellers.  The bulls need to push to the upside on Monday.

All year we have seen selling pressure in the morning and buying in the afternoon.  We saw that again today.  I would guess most of the selling pressure is coming from overseas.  Most likely sovereign wealth funds desperately raising cash.  The afternoon buyers are likely investors here in the states thinking they are getting a bargain.  I suspect that will prove to be an incorrect theory, but we will see.  The futures came inside the upper Keltner channel and rebounded.  If the world is not crashing by the open on Monday the futures look set to rally.  I guess we will see.

The VIX was down 5% today and closed at 20.53.  I don't think that is a good thing.  An up day on Monday is likely to take the VIX below 20.  The last time that happened SPX rolled over to  new lows.  That could easily happen again.  The reason I bring this up is that I have seen this bear market rodeo twice now.  Those bear markets were very different in many ways, but the VIX around or below 20 was bad.  SPX did not necessarily sell off right away, but upside progress was very slow.  Sometimes the market sold off without getting below 20.  Other times the VIX kept falling while SPX did a slow drift up or went sideways for a week or two.  In the end SPX sold off to new lows.  In the weeks ahead the odds are very high SPX will head south to new lows.  If you learn only one thing from this blog make it this fact.  The best sign of a bear market is the VIX getting to 20 or below while SPX is below the 200 DMA.  In the history of the VIX this has only happened during bear markets.  I really, really wish I had known that during the last two 50% crashes. 

Interesting how sentiment changed.  After two big up days there was lots of skepticism.  The third big up day seemed to make a lot of believers.  I heard lots of talk today that the market is very likely making a bottom.   Do not get sucked in.  That is how many people lose a lot of money in bear markets.  They buy the dip then get crushed as the market tanks to new lows.  There will be great bargains to be had down the road.  It is better to have a pile of cash to take advantage of that.  Let others be the bag holders.

A close below today's low next week probably means the rally is over.  Lets see how far the bulls are willing to push prices (if they are).

Sometimes the things I see in the media just amaze me.  When the market was tanking and recession talk was prevalent the media was quick to show data showing many stock market swoons that were not associated with recessions.  It is clear they said that stocks are not a good barometer of economic weakness.  Then we get a big 3 day bounce.  Now the media is out to say that the stock market is saying the risk of recession is greatly diminished and nothing to worry about.  Is that absurd or what?  SPX getting above the 200 DMA and staying there would be a great indication that no recession is going to happen anytime soon.  A three day bounce that did not even overtake the 50 DMA that is below the 200 is not a sign of anything relative to the economy.  The crap that comes out of the Wall Street media machine is just unbelievable sometimes.

The market and sector status pages have been updated.  Have a great weekend.


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