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Friday, September 9, 2016

Daily update 9/9 Tightest 40-day range in at least the last 100 years

"I  cannot find such a long narrow range pattern in the last 30 years on SPX.  This is a very, very odd pattern for the SPX daily chart in today's world.  We will only know if there is some important meaning in hindsight.  We see this kind of pattern intraday sometimes.  Usually when it is a continuation pattern there is a false break out first the wrong way.  Sometimes that break out gathers moss and the trading range turns into a reversal pattern.  I suspect to get the market moving again price will end up breaking below this trading range."

Pretty prophetic if I do say so myself.  That proves that even a blind squirrel can find an acorn now and then.  Stock patterns are fractal just like many other things in nature. 

SPX closed about 2.5 points below the 2015 high close.  That is within the range of an overshoot so I don't consider the break out to be a failure yet.  Breadth was -93% which was the first 90% down day since the mini crash in Aug. 2015.  New highs dropped way down to 28.  New lows increased a bit to 20.  I think it is safe to say the low volatility pattern we have been in has ended.

The futures ended below the key 200 SMA.  The -DI line is all the way up to 54.  Quite a bit of selling pressure.  The previous -DI reading over 35 was a good warning sign.

Quite a change in the counts.  Technically we are now oversold.  Lets take a look at the weekly version.

The red count crossed over the green, but is still slightly below 50.  It is considerably higher then it was after the brexit vote.  It might be a little tougher to turn the market around this time.

The bull pressure chart shows the short and intermediate indicators both got negative crosses.  Also notice how high the long term indicator was.  People were caught heavily long.  I think many were completely unhedged because of the belief the market could only go up from here.  I actually read recently how the VIX futures had a record short position.  How many times have I mentioned I have never seen a more complacent market.  Not only were people unhedged, but they were short volatility even though volatility was extremely low.  This seems like a recipe for disaster.  Queue the central bankers.

Many 90% down days are volume climax bottoms.  The usual response to them is to bounce.  In this case we are very close to the highs.  This looks much more like the start of a move down rather then the end.  However, that certainly does not preclude a bounce.  SPX ended the day just slightly below key support and is short term oversold.  A last ditch effort by the aforementioned trapped longs to save the market seems likely.  If this market continues down on Monday it is likely to get ugly very fast.  It just seems like the odds of central bankers talking up the market over the weekend or early on Monday are pretty high.  I guess we will see.  If we get a bounce the 8/2 low around 2147 could be significant resistance.  If SPX manages to get past that the 50 DMA is at 2163.  It would be pretty surprising to get much past that.

Today turned the short term trends down across the board.  The question of the day is whether this is a one day wonder or the start of a bigger move down.  As everybody should know I have been expecting this summer's break out to new highs to fail.  So obviously my bias is to the downside.  I think the trillions of dollars worth of bonds around the globe with negative rates is a clear sign the bond market is a bubble.  As I have noted many times I believe the U.S. stock market is as well.  It is pretty clear that the investors buying those bonds at negative rates were not planning to hold them until maturity.  I believe they were buying because prices were going up.  They figured the risk was low because the ECB and JCB were busy buying bonds with both fists.  Yesterday Draghi did not say anything about extending the QE program which might have scared some of those investors holding those negative yielding bonds.  While it is too early to say anything definitive it is possible that he started a mass exodus from the bond market.  A global back up in rates could be in the works which could have significant impacts on the economy.  It is the time of year of panics.  It is not hard to imagine both bonds and stocks throwing a tantrum here.  That could actually be the catalyst to send the U.S. economy into recession and get a true bear market in stocks going.  Time to pay very close attention.

I mentioned last night I could not find any similar daily chart in the last 30 years.  Apparently it is the oddest chart in more then a hundred years (and not by just a little).

I find the lack of volatility just amazing with all that is going on in the world.  Well it looks like that is over after today.

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


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