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Friday, October 14, 2016

Daily update 10/14 SPX double inside weeks

Uh oh.

SPX tested up into the 2145 resistance area this morning and was soundly rejected.  The new blue trendline is from the Feb. low.  SPX appears to have broken that line.  The break needs confirmation though.  New highs increased a bit to 50 while new lows dropped to 20.  The futures gapped up and ran up further after the open.  However, the persistent pattern of sellers showing up around 10:10 AM happened again.  They just kept hitting the bids on any intraday strength and SPX ended the day closing on its low.  This has been going on for weeks now.  You can almost set your watch by it.  During the last two bear markets it was common for sellers to come out some time during the morning on up days.  However, I can't remember them being so precise on the time.  It is like there is a coordinated effort going on.  This reminds me of all those 100 DMA bounces SPX did a few years back.  This is not random price action.  Something is going on.  Maybe the same group of people that were doing that coordinated buying are now doing coordinated selling.  At any rate this market is not going significantly higher until that price action stops.

The futures were rejected at the 20 SMA.  It appears that prior support has turned into resistance.

The red count moved down only slightly and remains above 50 and below oversold levels.  Here is a look at the weekly version.

While SPX is above the brexit low the red count is higher then it was then.  It is well above 50 now.  Lets look at the monthly version.

Notice the green count dropped precipitously in Sept. and has continued lower in Oct.  Both Aug. and Sept. were doji bars after the long run up from the 2009 low.  I think a monthly close below the Sept. low (2119) would be very bearish.  Also notice the double peaks in the red count earlier this year with the count dropping below 50 in between.  The only other times that happened going back to 1987 were in 2000 and early 2008.  You know what happened after that.  I think that was a sign we had entered a bear market.  In 2003 and 2009 the new bull markets shot the green count over 80 before dropping back.  The peak back in Aug. was 65.  Was that enough to kick off a new bull market?  I don't think so.

There have been a lot of billionaires saying they are short and expect the market to tank.  For all I know it could be them working together doing the coordinated selling.  All I know is that this price action is not random.  How long it lasts is anybodies guess.  I also know that if it persists long enough it will break the market down.  Investors are holding expensive stocks and earnings growth is either slow or non existent.  At some point there will be a panic exit if we keep heading lower.  Breaking the brexit low probably sends us back to the Feb. low.  Breaking that and full scale panic is likely.  SPX closed today at 2132.98.  That is less then 3 points above the 2015 high close from May of that year.  That is almost 17 months ago.  While the pundits proclaim the bull market is still intact is that really true?  Shouldn't we have more then 3 points of gains in all that time?  Meanwhile we have 17 months of people putting money to work in the market with no gains to show for it.  How long do you think they will hold on when the losses start to add up?  There is clearly an air pocket below the Feb. low all the way down to the 2007 high around 1550.  On top of the shaky behavior of the market the latest NAAIM number came out today at 86.  That means active money managers are extremely loaded up on the long side.  It is possible they are not very heavily hedged because of the prevailing feeling that nothing bad can happen to the market.  After all it is an election year.  Maybe I worry for nothing and everything is just fine.  However, it looks to me this market could come unhinged a bit more then people think. 

I missed the possible significance of the weekly chart.  This could be a bad omen.  The S&P did something it hasn’t since 2008 — and it could be a bad sign for stocks  Here are a couple of snippets.

The S&P 500 just experienced two "inside weeks" in a row for the first time since February 2008, an indication that the market may be in for a major breakdown or breakout in the weeks ahead.

Inside weeks are unusual, but two inside weeks in a row is rare indeed. The last time the market created such a Russian-doll-like trading pattern was in February 2008; the two prior occurrences were in June 2007 and January 2000, according to Ryan Detrick, a technical analyst with LPL Financial.

The last three times SPX had back to back inside weeks the market was either in a bear market or about to start one.  Statistically that is a small sample, but it covers 16 years of market action.  Given the weakness I see in the economy it is easy for me to believe a bear market is coming.

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


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.