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Wednesday, April 13, 2016

Daily update 4/13

Better then expected data out of China sparked a buying spree around the world.

SPX closed above local resistance.  Breadth was +71% so it was another strong day.  SPX is getting ever closer to the key downtrend line.  Its about another 8 points higher which should be a chip shot now.  New highs came in at 112 which was slightly down from yesterday and still well below where we were back in March.  That is a bit of a yellow flag for the bulls.  The much bigger likely problem is that we are approaching key resistance while being extremely extended from the 50 SMA.

The futures cleared the upper resistance line today.  We will see if they stay there.

The green count got above 50 today, but is still below overbought levels.  There are obvious divergences here.  Keep that in mind if price reverses in the next few days.  It won't matter if we keep going up.

The bull pressure chart shows obvious divergences especially in the intermediate indicator.  This is similar to what it had at the Feb. low, but not quite as big.  Like the green count this will only matter if price reverses soon.

Everything is positive, but showing some negative divergences.  SPX is clearly very extended from the 50 DMA and trend line resistance looms just overhead.  I don't know what he odds of a reversal soon are, but they are clearly non zero.  The big oil meeting in Doha that seems to have been the major driving force forthis entire rally is Sunday.  I have been wondering if some people might take some money off the table on Friday before the meeting, just in case.  I will be surprised if there is actually an agreement, but I guess stranger things have happened.

I have seen a number of comments on this rally about whether it is largely short covering or not.  From what I can see the Oct. rally was mostly short covering.  I believe that is probably why the retest succeeded.  There were not all that many new longs to sell on the way down.  This rally is completely different.  It is very obvious that there has been a lot of new buying.  That is good if the market keeps going up.  However, if this rally fails all those new longs will feed the bears and we will see  new lows.  I have not seen anything so far to make me think this rally won't fail. 

Retail sales were terrible today and the inventory to sales ratio climbed again.  I still don't see any signs of a serious pick up in the economy yet.  Used car lots are filling up and prices are falling.  New car sales have been declining since Nov. and used car prices falling will not help that.  Auto production has been a big part of the economic strength since the government made the banks lower credit standards for buying a car.  It looks like that stimulus is running out.  A drop in auto production will be clearly visible in the manufacturing data.  The economy is still at high risk of more slow down.


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