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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/20

?- 3/31/20

Up 5/29/20

Intermediate

Up 8/14/20

Up 8/21/20

?+ 9/18/20

Sub-Intermediate

?- 9/15/20

Dn 9/11/20

?- 9/14/20

Short term

? 9/4/20

? 8/18/20

? 9/4/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Thursday, November 3, 2016

Daily update 11/3

Streak extends to eight down days in a row on SPX.


Today's low was just 3 points above the 200 SMA.  The breadth was only -58%.  New highs were 16 and new lows were 97.  The breadth suggests the sellers are losing some momentum.  There is no sign of panic as TRIN has remained low.  The volume tapered off the last two days.  That makes sense to dial back the selling as a potential support area is reached.  I see that a lot in pullbacks to the 50 DMA.  I have seen a lot of bounces from just above the 50.  I can't recall seeing that very often with the 200 though.  Most of the time it penetrates at least slightly.  However, usually there is a good bit of fear in the market by the time SPX gets to the 200.  That fear is usually missing at the 50 on the way down.  Here are some facts on similar streaks.  Here’s what’s unique about S&P 500’s longest losing streak in 8 years  What I find most curious is this one.

One of the strange characteristics of the latest slump was the fact that the S&P 500 has been positive at some point in each of the last eight sessions before ending in negative territory, according to FactSet.

That indicates the selling did not come from overnight news.  Something is bugging the market beyond the short term news.  Another stat is this is the second smallest decline for an 8 day streak.  That is because there is no panic.  The sellers are looking for strength and hitting the bids.  That happens much more often in a bear market then a bull.


The futures are getting a little extended here.  The -DI line has fallen below the ADX.  That often means a bounce is coming soon.  No guarantee though.


The red count slipped some today despite the down day in SPX.  It remains well below oversold levels.  This suggests to me money is coming out of some big cap stocks and moving into more defensive issues.  FB was a good source of funds today.

The VIX was up over 14% today which was rather large relative to the move down in SPX.  This suggests a lot of hedging going on.

It is pretty clear long only money managers are adjusting their portfolios and adding hedges.  Is this just for the election because Trump might win?  Is it much deeper then that?  That is a good question Bob.  Here is what I know.  The selling into strength started well before Trump started surging in the polls.  However, since the FBI news broke on Friday there has been almost no bid at all in the market.  I think the answer to the question is some of the selling is election related and some is not.  I have an idea on what might be the bigger problem.  In Daily update 9/9 Tightest 40-day range in at least the last 100 years I wrote:

"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."

At the time I had no idea why Draghi did not talk about extending QE as many investors were expecting.  To further cause consternation on Oct. 5 there was this news:

Bloomberg cited officials at the euro zone's central bank saying that the 80 billion euro-a-month program could be tapered in steps of 10 billion euros before the official conclusion of its quantitative easing. Although, it heavily caveated that view with suggestions it could still be extended past the current end-date of March 2017.

Again, I did not understand what was driving this talk towards ending QE.  Maybe this is it.  I hear that since the ECB went to the -.4% interest rate policy bank deposits in Europe have been contracting. That ain't good.  That is what you might call a backfire.  So we know bonds are in a bubble.  We know people were only buying them because they knew they could sell them to the ECB.  A risk free trade.  However, what happens when the ECB cuts back on the buying.  I am quite sure people holding negative rate bonds are not planning on holding them to maturity.  There is a slow increase in yields going on all around the world.  I suspect this is smart money front running the end of the ECB QE program.  Stocks could be going down because higher rates could slow the global economy and makes stocks with high valuations less attractive.  The slow drip going on in both stocks and bonds could turn into a stampede at some point.  I have no idea what that point would be for bonds.  A break of the June brexit low (1991) would be bad for stocks.  Breaking the Feb. low (1810) could be catastrophic.

I don't know if there will be much of a bounce before the election or not.  There has been no bid since last Friday.  The VIX closed over 22 so there is always the possibility that the close proximity to the 200 DMA and the elevated VIX brings out some buyers.

Bob

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