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Monday, March 21, 2016

Daily update 3/21

Lethargic day.

The bulls bought a little today, but were afraid to push price much above Friday's high.  In the end SPX closed higher, but below Friday's high.  Breadth was slightly negative.  New highs dropped way down to 57.  That is a big loss of enthusiasm.  Today looked like most people were sitting around waiting for somebody else to buy or sell first.  SPX is a pretty good ways from the 50 SMA.  Can't blame the bulls for being a little shy.

The futures don't tell us anything we did not already know.  However, the green count slipped considerably today and is back out of overbought territory.  It remains to be seen if that is an indication of a top or not.  Certainly a loss of momentum.

Here is a look at the full bull pressure chart with short, intermediate and long versions. 

The first thing to realize is that these indicators can top well before or after actual reversals in price.  Sometimes they show divergences, sometimes not.  They can also present mixed messages which usually leads to choppy price action as the bulls and bears fight it out.  Before the big dumps last Aug. and in Jan. both the intermediate and long indicators were showing considerable selling pressure.  It is not always that clear.  It is unusual to have that much warning time.  Currently both the short and intermediate indicators are showing some divergence on this last leg up in price.  The short one is quite noticeable.  Both these indicators seem to show stronger buying then the Oct. rally.  I believe this means that Oct. rally was mostly short covering.  The current rally has more new buying going on.  Before anybody jumps to the conclusion that means we are going to break out on the upside there are similar strong bear market rallies.  What this really means is that the Feb. low is extremely important.  If it breaks it is likely to unleash a torrent of selling from these fresh longs.  The strength in the intermediate indicator tells us the long term green line will keep rising for a while even if price peaks here.  If we were still in a bull market that would tell us there should be plenty more upside to come.  However, bear markets are different.  Here is a look at a bear market rally from 2001.

The rally in Jan. 2001 showed quite a bit of buying, but did not last long.  When SPX made new lows it went down another 13% to the next important bottom.  The upshot is that the long term indicator says we are highly likely in a bear market so the shorter indicators need to be interpreted as such.  Therefore we cannot rely on the strength in the intermediate indicator as an all clear.  It may in fact be telling us that downside risk just increased because of the new longs.

The market may be topping here as we have lost momentum, but the bulls are still in control.  Time to relax a bit and wait and see how it unfolds. 


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