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Thursday, April 21, 2016

Daily update 4/21 What Killed the Middle Class?

A little profit taking.

People were hitting the bids all day as the market slid slowly lower.  SPX hit the upper side of the downtrend line.  Now the all important question.  Will that become support or give way?  The breadth was -60% so the selling was fairly broad based.  New highs dropped way down to 84.  One day off a rally high that is pretty poor. 

The futures ended the day fractionally below the 20 SMA.  Will they break it this time?  While they cleared the top of the resistance zone they failed to stay there.  A break out of the bottom could usher in some more selling pressure.

The green count dropped under 50 again.  The red count moved up sharply.  Another down day is likely to see a negative crossover.

My best guess is that yesterday was the end of this rally.  I expect the next bounce will be to a lower high.  I think this is the biggest bull trap rally I have ever seen.  Earnings so far are on track for about a 7% drop.  That may change some, but they will still be bad.  The estimates for next quarter are around  -2%.  People have been buying stocks on the theory that Q2 will be the trough in earnings.  Current estimates are for Q3 to be positive.  The trouble is that by the time we get to Q2 earnings season estimates could be much lower.   That is what happened in Q1.  They kept on dropping as the quarter progressed.  We could even be in recession by the 2nd half of the year.  Some year the sell in May thing is actually better done in April.  I just have this nagging feeling that is the case this year. 

The bears need to see downside follow through tomorrow.  If the bulls show up tomorrow that should indicate a successful test of the downtrend line.  That could set up a test of the ATH.  That seems like the lower odds scenario.  I think 2100 is just too much resistance.

This a good article with lots of charts.   What Killed the Middle Class?


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