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Friday, March 11, 2016

Daily update 3/11 Global liquidity indicator

Delayed response to the ECB easing? 

Smack.  SPX hit he 200 SMA and the lower resistance line today.  Volume was rather light for a thrust day.  Sellers had their hands in their pockets for the most part.  Breadth was +79% so another  strong day.  New highs were only 90.  That was less then a couple of days ago and only one more then we had on 2/25.  While SPX is moving up I don't see any sign the market is truly gaining strength.  This is my upper target for this rally. 

I had to roll over to the next futures contract and redraw the lines.  I scrunched the chart up so everybody can see the situation better.  The futures cleared the lower resistance line of a big area of overhead resistance.  They are pretty stretched from the 100 SMA. 

The green count popped up some with the market, but is still below overbought levels.  There are two ways to look at this.  The bullish view is that since we are not yet overbought there is more room on the upside.  The bearish view would be there is a big ass divergence here. 

Lets sum things up.  The VIX indicates we are in a bear market.  SPX just hit its 200 SMA on a thrust bar that leaves it extended in price.  On top of the 200 MA resistance there is a big area of overhead resistance from late last year.  To go with that not so bullish sounding scenario the green count chart is showing a pretty big negative divergence.  Doesn't this look like a setup for a pullback next week?  While it is option expiration week and that normally has an upside bias I don't think that will be the case this time.  How the market plays out over the next few weeks probably still depends on what oil does.  Oil has kept on rallying and that has inspired people to keep buying stocks.  This in turn has greatly diminished the fears of recession that helped fuel the sell off.  If nothing surfaces to rekindle that fear we could have a mild pullback here that gets bought for a retest of the high type of thing.  I am certain that at some price level oil producers will step in and massively sell futures to hedge their future production.  They have to be thrilled with this rally.  I don't know what that price level is.  Since oil has been totally ignoring rather large inventory builds price could crumble pretty quickly when that happens.  I am also certain the economic data looks better because of the unusually mild weather screwing up seasonal adjustments.  That will go away now that we are moving into spring.  Therefore the economic data could start surprising on the downside again in the near future.  The upshot is that while the bulls are in control there are plenty of things that could intervene.  We are also at what should be major resistance.  The market may mess around here without going significantly higher. This seems like a very good place to greatly pare back long exposure put on for this rally.  The risk reward is now skewed to the downside.

This is an interesting indicator.  Unfortunately I don't know a free site to look at it.


SPX clearly struggles when this indicator is below 0.  Two of the last three times it crossed negative SPX was cut in half.  The mini crash in stocks in 2011 caused a negative cross that did not result in a prolonged bear market. This seems to be painting a picture much less rosy then the pundits in the media would have us believe.  While recession fears have receded the risk has not.


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