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Tuesday, May 24, 2016

Daily update 5/24

Bull explosion again.

Near as I could figure out there was no real reason Europe started the day with a buying frenzy.  That frenzy carried over to the U.S. open.  SPX closed above the 20 and 50 SMAs.  The breadth ended at +74% so it was a strong day.  Did this break the pattern I was talking about?  Maybe, but the last bounce died right after closing above  the 20 SMA.  The 20 SMA crossed below the 50 today.  A lot of people follow that pair as buy and sell signals.  If SPX falls back below the 50 SMA there could be considerably more selling pressure this time. 

The futures are back up to the upper channel line.  They also have blue bars so they are above the upper Bollinger band as well.  That was enough to stop the last bounce. 

The green count crossed above the red, but is still slightly below 50.  The bulls need to keep the upside pressure on.

It was kind of funny listening to the people on TV trying to explain why the market was up today.  Nobody came up with a satisfactory explanation.  We have seen big bounces on no fundamental data recently and they have all failed.  Will it be different this time?  I don't know the answer to that yet, but I think it will be quite bearish if this bounce also fails.  We may test the 5/10 high first though.

We have seen a lot of V bottoms and strong rallies after pullbacks in this bull market.  The one thing that always happened first was a deep short term oversold condition.  This bull market was unusually consistent in doing that.  Can this market rally strongly from a multi week pullback that did not generate a deep short term oversold condition?  It would be much easier to say yes if the fundamental data showed some improvement.  While the economic data in April looked somewhat better the global manufacturing data so far this month has actually taken a step backward. Japan was actually abysmal.  As SPX approaches the top of the range people will have to decide has anything really changed enough to hold on rather then take profits.  I believe the answer most people will come up with is no. 

Today turned the short term trends neutral across the board.  I have no idea what happens tomorrow.  If there is more up a test of the 5/10 high should be on tap.  If we get down instead the bounce could be over.  The bulls need to keep SPX above the 50 DMA.  A failed bounce here is a big negative.  I will detail why in a future post if the market rolls over again.


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