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Friday, August 5, 2016

Daily update 8/5 Investors (Over?) Trim Their Hedges

The employment report was strong once again.  Some noted economists seem to be questioning the seasonal adjustments.  I think Rick Santelli on CNBC said it best though.  He does not expect a report between now and the election below 200,000. 

SPX made a new closing high.  The COMPX also made a new closing high by 3 points.  It is still slightly below its intraday high from 2015 though.  Breadth came in at +68%.  New highs increased to 238.  That is pretty close to where they have been during the recent trading range.  Well below the peak reading we saw when the bond funds were also making new highs. This is the break out as was the usual result after the false break down.  Now we need to see if the upside break out sticks.  There is likely to be a sizable negative reaction if it fails.

The futures closed once again above the key 2168 level.  However, they fell just short of the 8/1 overnight high of 2177.75.  This may be another key resistance point, but that remains to be seen.  I think upside progress will be slow without some news for people to buy on.

This is just one of the charts showing a curious technical picture.  Despite the new high close the red line is still above the green line.  There are two possible ways to look at this chart.  One is the green line is well below overbought and there is plenty of room on the upside for the market to run.  The bears might say look at that negative technical divergence. 

The 10 DMA lines are barely positively crossed and the MCO is even negative.  The same thing as the green/red count applies to this chart.  It all depends on how you want to look at it.

There are lots of indicators in the same configuration.  Negative divergences do not mean the market is necessarily going to reverse in the near future.  However, nobody should be surprised if it does.  A close back below 2175 would put SPX back in the trading range and could bring out some sellers.  SPX needs a green price bar to upgrade the short term trend to up again.  R2000 accomplished that so it is back in an uptrend.  It will be interesting to see what happens next week.  SPX has a hanging man on the weekly chart.  A close below this weeks low would indicate a likely short term top on that chart.  Will the bulls keep on buying?

This is a pretty interesting article on the volume of inverse ETFs.  Investors (Over?) Trim Their Hedges

It is a good read.  Cutting to the chase for those pressed for time.  Very low volume as a percent of the entire volume in inverse ETFs is a sign of very little hedging activity.  The theory is that means there is a high degree of bullishness/complacency on the part of investors.  This is the 6th occurrence of extreme low volume since 2011.  Here is a table reflecting what happened the previous 5 times.

I mentioned recently this market felt extremely complacent.  This is technical confirmation.

This just feels like the exact opposite of the spring of 2009 to me.  We had the FED doing QE and the government had passed a big stimulus bill and yet the market kept going down even though it was already extremely extended.  I just could not understand why.  I started to think something was really wrong that I did not see.  Now we have credit standards tightening, earnings and revenue falling and an extremely weak U.S. and global economy.  Not to mention how over valued stocks are.  I can't for the life of me understand why stocks are still going up.  I keep looking for something I am missing in the fundamentals and so far I cannot find it.  The risk of recession is high.  I think this fits the very definition of a blow off move.  They are strong and make everybody a believer, but have no fundamental underpinning.  They usually end with a rapid reversal, but there is no telling how far up it goes before that happens.

The market and sector status pages have been updated.  Have a great weekend.


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