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Tuesday, July 12, 2016

Daily update 7/12 Dollar index

More stimulus talk, more buying.

Some chart.  Breadth was strong again at +68%.  New highs dropped quite a bit to 302.  It is a little hard to see how this just keeps going in the short term.  A pullback to test the prior high (2131) would be normal even if the market is going to continue higher.

That futures chart is pretty interesting.  I didn't know physics applied to the markets, but maybe they do sometimes.  At the brexit vote low the futures were 79.5 points below the 200 SMA.  At today's high they were 79.5 points above the 200 SMA.  An equal and opposite reaction.  One of Newton's laws of motion.  It seems likely we could have a little pullback from today's high.

The green count increased today and is well into overbought territory again.  The hook to a lower high often signals a short term top.  With price this extended that makes logical sense.

Curiously the SPXEW index stopped just fractionally below its prior high.  Will it do it or not?

I marked the days the VIX dropped below 13 since the mini crash last Aug.  All three prior instances saw a sizable pullback.  The longest the market continued up was another three days last fall.   If we see a similar sized pullback this time the break out to new highs will fail. 

I still think that earnings will determine what ultimately happens with  SPX's break out.  One of the key variables I keep hearing for earnings is the dollar.  Many people think the dollar is more likely to go down then up (at least they say that).  I just don't agree.

The dollar index on the weekly chart came back to the 100 SMA and twice.  The second test resulted in a sharp rally.  It is currently consolidating right at the 50 SMA.  This chart looks positive to me.  I think a test of the highs will happen eventually.  This could still make a top after another test to the upside, but I think the odds are better that it eventually breaks out on the upside and goes higher.  Any upside will be a negative for oil and earnings.  A break out over the 50 SMA or failure here will be important.

This move is either a kick off to blue skies and a new leg up or a blow off top.  To be a new leg up investors will have to be willing to keep buying even with a very low VIX.  That is something they have been reluctant to do for nearly a year.  The trouble is that the fundamentals have not changed.  This move seems to be mostly related to expectation of further stimulus in Japan.  Is that reason enough to keep people buying?  Technically and fundamentally (at least IHMO) it seems like the odds should be for a break out failure.  I also believe the consequences of such a failure will be a dramatic sell off.  Stocks are expensive and earnings are falling.  Earnings have actually fallen back to where they were when SPX was 1400.  I wonder if it is even possible for CEO's to say enough positive things to keep investors from being disappointed.

Guy Adami (mentioned yesterday as the long time market skeptic turned bull) said today price is truth.  Really.  I guess he has never looked at a price chart.  Markets have so many head fakes it isn't funny.  If price was truth we would all be rich because making money would be simple.  Kevin O'Leary (best known for TV show Shark Tank) has been nothing but a bull for years in his appearances on CNBC.  Today he was skeptical.  He said if the market was still at new highs after a couple of weeks of earnings he would turn into a believer.  He talked about several reasons why he was skeptical such as falling earnings and revenue.  I have seen him many times over the years and never saw him skeptical that I can recall.  In the last two days a long time skeptic turned bull and a long time bull turned skeptic.  Hmm.  Curious, don't you think.

Today turned SPX's primary trend to neutral.  One could argue that yesterday did the trick, but I like to see confirmation on a break out.  The COMPX and R2000 remain down for now.  It is possible SPX's trend is still down.  In rare instances a market will test a prior high or low after a trend change and reverse to continue in the direction of the new trend.  I think this is likely what happens here, but we will see.


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