Yesterday's low was formed by buyers showing up rather then selling being exhausted. That was clear today as the sellers were back out. While SPX made a new closing low for this pullback it ended the day in the upper half of the daily range and never got anywhere near yesterday's low. The breadth was positive all day and ended at +58%. Today was quarterly option expiration and index rebalancing so there were crosscurrents all day long. The bulls are certainly trying to support the market here. The trouble is that it may all be option related. If that is the case the support went away at the close today.
The bulls were unable to follow through on yesterday's reversal. However, there was so much stuff happening at this option expiration that may not matter. What we do know is that the futures are trying hard to hold above the 200 SMA. That is quite a few bars now so early next week should be break or bounce.
The red count reached right to the edge of an oversold condition. This is the highest reading since back in Feb. at the low. That may be a bad sign for the rally overall, but could give the bulls a lift in the short term. Lets take a look at the weekly chart.
The green count is still above the red, but well below 50. The lines are getting so close a negative crossover would be easy now. A negative cross does not necessarily mean an imminent collapse. However, since the May high negative crosses have meant the rally high was in and were eventually followed by dramatic sell offs. I don't see why it would be different this time. The bulls need to get buying and get SPX to new highs.
The market clearly had support this week, but it might have been option related. Meanwhile we could be affected by brexit polls over the weekend. The Euro/dollar pair rallied sharply after yesterday's murder of the Brittish lawmaker. The Brittish pound rallied as well and continued that bounce today. The Brittish pound tanked considerably when the brexit news first hit on 6/10. It has now made a fair chunk of the loss back. It appears the currency market is saying either brexit is going to lose or it is not a big deal if it wins. If that perception does not change between now and Monday then U.S. stocks are probably going to rally. If the perception changes back to brexit then we could break support and head south in a big way. I will be glad to get the vote over with so we know what we have to deal with.
It has been interesting reading and listening to comments on the FED since Wed. My perception is that many people are losing faith in the FED can fix everything mantra that has been so prevalent. Even Steve Liesman on CNBC gave it up. He has been a staunch supporter. I think this is very important. I could be wrong, but I strongly believe what has held the market up is the belief the FED has everything under control and will not let anything bad happen to the stock market. If that perception is lost the dip buyers that have been salivating to enter on the major pullbacks might be less inclined to do so. This is the most questioning of the FED I have ever heard. It will be interesting to see how the FED reacts to said questioning.
The market and sector status pages have been updated. We had 5 red sectors this week. That is the first red we have had since the Feb. lows. The market is weakening. Have a great weekend.
Bob
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