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Wednesday, August 31, 2016

Daily update 8/31

More hitting of the bids today.

The market sold off right from the start until mid day.  There was an afternoon rally that made things look a little better.  SPX ended the month down about 3 points.  I was a little surprised it was allowed to have a negative month.  Breadth was -59%.  New highs dropped considerably to 115.  This chart is starting to look a little like a possible slow roll over top. 

The -DI got above 35 today.  That opens the door to a bigger sell off.  It has been a long time since we had one of these signals because it only applies when SPX makes new bull market highs.  While the door is open to a bigger decline it does not mean the bears will step through it.  What it means is that down side risk is now higher then it was yesterday.  Since we are coming into the season of big declines this might be an important sign.  It might be a good time to plan hedging or shorting strategies so they can be applied if needed.

The red line crossed 50 today, so the internals have continued to weaken.  The last time we crossed 50 the buyers stepped in and SPX went to new highs.  If that were to happen again it would negate the -DI signal from the futures chart. 

The bull pressure chart shows the short term lines have been close together for a while now.  The intermediate lines are getting awfully close together now.  The long term lines are still ok for now.  The wave of buying pressure we saw on the break out to new highs is fading.  There has been no real selling pressure at all though. 

Market internals are weakening during this consolidation period.  That is normal and does not really tell us whether this is a top or a consolidation to go higher.  The transports still have done nothing.  The financials have had some bids the last few days as speculation grows on higher rates.  However, XLF still remains several percent below its 2015 high.  This market still looks out of sorts.  I believe it is more likely this is a top rather then a consolidation to go higher.  Many people are waiting on Friday's employment report.  If it is strong rate hike expectations will likely rise.  If it is unexpectedly weak they will tumble.  I have no idea what happens if it is "just right".  Tomorrow is likely to be another slow day while we wait.


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