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Tuesday, January 31, 2017

Daily update 1/31

Dip buyers active again.

The dip buyers kept SPX near the top of the old trading range.  Not clearly above it and not clearly back into it.  Breadth was +58% which was quite strong for a down day in SPX.  New highs picked up to 74, but remain quite low.  Are we going to bounce off that upper horizontal trend line?

The futures hit the 100 SMA again and again found support.  For the moment they seem to have run into resistance at the 20 SMA.  Will the futures break through that resistance or be turned back?

The green count turned up again today, but remains below 50.

There is a FED meeting tomorrow.  Nobody expects the FED to take any action.  However, sometimes their statement can cause a little volatility.  Despite the island gap reversal and the Dow's failure to hold 20000 the market may not be done.  Another attempt to go higher could be in the works as the market looked like there was some accumulation today.  I think there is a lack of selling pressure at this time because we are so close to the one year anniversary of the important Feb. low.  After the middle of Feb. that may change.


Monday, January 30, 2017

Daily update 1/30

I think the market got a little dose of reality that things might not go so smoothly in Washington today.  Where investors got that idea in the first place is beyond me. 

SPX traded below the Feb. uptrend line, but bounced to close above it.  Breadth was -69%.  New highs dropped way down to 44.  New lows picked up a bit to 27.  Dip buyers came to the rescue once again.

The futures dipped down to the 100 SMA, but found support there.  They ended the day above the 50 SMA.

The counts got close together today, but the green is still above the red.  Falling back below 50 this quickly is not a good sign though.

I think the most important thing today is that SPY has an island gap reversal to the downside.  That formation is pretty rare on indexes.  It also has a pretty good track record of follow through.  Sometimes significant. 

The island gap reversal has put the bulls on notice.  They need to kill that formation by at least closing the gap and preferably making new highs.  The last break out didn't really have any oomph behind it.  It seems unlikely to me that bulls will be able to do that.  The next few days should tell us much more.


Friday, January 27, 2017

Daily update 1/27 Blinding Flash of the Obvious

Ho hum.  Still no follow through on the break out.

Instead of bulls eager to buy Dow 20000 we got yet another day of a morning high and afternoon low.  Breadth was -56%.  New highs dropped way down to 131.  The VIX was within pennies of the lowest it has been in this entire bull market.  The market just continues to look tired.

The green count remains above 50, but its not really in thrust mode.  We don't seem to be getting a good surge of buying on the break out.  Lets look at the weekly version.

The weekly green count has been weakening since mid Dec. when the consolidation started.  Its currently barely above 50 so a turn down in the market would take it below 50 pretty easily.  So far the intermediate indicator is showing a bit of a negative divergence to the summer break out.  However, we don't know if it has peaked yet.  This is the weakest this chart has looked at new highs since last February's low. 

There certainly seems to be a lack of buying enthusiasm at these prices.  The morning high and afternoon low is definitely a negative pattern and it is showing up too often to just dismiss it out of hand.  The market looks tired and in need of a pullback.  I guess we will see if that happens in the not too distant future.

Here is a very interesting open letter to the president from a former FED insider.  Blinding Flash of the Obvious

Have a great weekend.


Thursday, January 26, 2017

Daily update 1/26 The infamous sideline money

SPX hits 2300.  Now what.

It was yet another day of early morning high and afternoon low.  Not good.  Breadth was slightly negative.  New highs were down some to 259.  Not enough break out players today to push the market higher.  In fact I heard some comments about a lack of enthusiasm here.  That sounds like an exhausted market doesn't it?  I guess we will see what happens.

The green count turned down quite a bit today.  Not exactly inspiring.

Today was a pretty common top looking bar.  Not exactly what bulls want to see after breaking out of a trading range.  This break out looks at risk for a failure so we need to watch it closely.  Some people think I am a perma bear.  I can understand where that comes from, but it isn't really true.  What I am is paranoid.  I have never talked about why I am like that.  Many years ago I wrote a little about my experience with at IBM. 

"My brain has a way of putting seemingly unrelated facts together to arrive at conclusions others do not.  A coworker of mine was working on a problem where the software would blow up every few days.  The problem was on a system in France and he had set up the debugger so when it blew up he could look at it.  He worked on the problem for several weeks.  He finally asked me for help.  I looked over his shoulder at what was blowing up.  I spent a couple of hours thinking about it and out of the blue it came to me it was a multi-threaded problem.  There was a teeny tiny time window where two different parts of a program might access the same piece of data and make a change that caused a problem for the other.  The window was so small that the application could run for days or even a week before it happened.  He was pretty skeptical, but he changed the code and locked the data so it could not happen and the problem never occurred again.  When he asked me how I figured that out I had absolutely no idea.  It just popped in to my head."

Sometimes I get what I call nagging feelings.  They don't always come to pass, but over the years a lot of them have.  Sometimes I can figure out why I think a certain way and sometimes I can't.  Ever since this bull market started I have had this nagging feeling that it would end without much warning.  I have been paranoid that the market would start what looks like a normal pullback and just keep on going trapping everybody that is long along the way.   I don't know that I can explain exactly why I have this feeling.  Part of it might be the expectation that the real trouble that causes the next bear market is likely to originate overseas.  Maybe I worry for nothing.  Time will tell.  I just wanted everybody to understand why I obsess over figuring out the bull market top.  I am convinced the next bear market is not going to be a pleasant experience. 

This chart is a pretty good representation of the so called sideline money.  It is a ratio of bear and money market funds divided by bull fund assets.

At the end of last year this ratio got the lowest it has been since 2000.  We can see that 2015 showed a period with this indicator below .20.  That began the long trading range.  The only other period where this ratio was below .20 was 2000.  Here is that chart.

In the history of this data this is only the third time below .20.  The other two times lead to a bear market and a trading range lasting over a year.  Obviously the sample size is small.  However, I think the logic behind the ratio is sound.  I recently showed a chart showing all the short covering that has happened since the election.  This ratio shows sideline money at historical low levels.  The fuel to push this market significantly higher is absent at the moment.  I am on record saying this recent move to new highs looks like a blow off top.  I still believe that could be true.  I suspect the result of this extreme low reading of sideline money will end up being a bear market as opposed to another prolonged trading range.  Time will tell.

Interestingly this ratio did not give a warning at the 2007 top.  In fact it spent that bull market at generally higher levels then the current bull market.  I would say that bull market was much more "hated" then this one despite what the Wall Street pundits say.  I am sure that was largely because the major indexes were not at new all time highs though. 


Wednesday, January 25, 2017

Daily update 1/25 Historic day as the Dow hits 20000

I guess that headline will be all over the place.  Glad to have that finally over with.

Upside follow through.  Breadth was +62%.  New highs expanded considerably to 322.  SPX fell just short of 2300.  This is a clear break out of the consolidation.  R2000 has not done that yet.

The green count reached 60 today.  This is the highest it has been since mid Dec.  We have liftoff.  The question is how long will the engines keep running.  As I have been saying this braided pattern sometimes breaks with a fake out.  If this is a fake out we should know very soon. 

They paraded an endless stream of people on CNBC today telling us that if we were not fully invested in stocks we were missing out and it is not too late to climb aboard.  I also heard we should not worry about the low VIX.  Not a problem.  They said it has been low for years and we keep going higher.  It is true that the VIX has been low much of the time over the last few years.  However, there has been no time where the VIX was this low and it was a particularly good time to buy.  Maybe this time is different and the market just keeps rising from here. 

A close by SPX back below prior resistance around 2275 would be an early sign of a possible break out failure.  That event would likely lead to a break out below or at least a test of the late Dec. low.  We know that can't happen so there is really no reason to even bring it up.


Tuesday, January 24, 2017

Daily update 1/24

Bulls showed up on cue.

Last night I mentioned the hit of the 100 SMA on the futures chart might be a good place to launch from.  The bulls showed up today and got SPX to a new all time high.  It even closed at a new high.  However, it failed to close above the prior intraday high.  It is also only 9 points above the 12/13 close.  Breadth was +71%.  New highs were 205 (highest since Dec.).  Will it keep on going?

The futures stuck their head above the upper channel line, but failed to stay there.  Not very clear this is going to keep heading higher.

The green count crossed above 50, but just barely.  It would have been nice to see this climb to 60 or better so it looked like a real launch.  This is inconclusive.

Here we are once again at the top of the recent range.  The VIX closed at 11.07.  Obviously this is extremely low.  I don't see any technical evidence to suggest we are likely breaking out to head higher.  That is not to say we won't keep heading up, but I don't see any sign of strength to say this time is different.  I mentioned before that the braided pattern on the green/red count chart usually does not last long.  I think the pattern is going to break now.  However, it is not uncommon to have a fake out move before the real move gets going.  I think it is put up or shut time for bulls.  If this break out attempt fails I believe there will be more selling pressure this time.  One way or another I believe the market is going to get going.


Monday, January 23, 2017

Daily update 1/23 Inflation – The Good & Bad 01-20-17

The bears showed up right after the open and with price below where they had been showing up.

Another day with the high early on.  Technically we did not make the low in the afternoon as it occurred just before noon.  However, the spirit of the pattern definitely existed.  This pattern is definitely becoming established.  Some investors are selling opening strength.  Breadth was +52%.  New highs were stable again at 84.  New lows dropped a bit to 16.  Since SPX did not get above resistance today it broke the Feb. uptrend line by default.  Being as we broke it once before and the world did not end I can't say that today was important.  Time will tell. 

The futures have been going sideways so long the 100 SMA has caught up to price and was tagged today.  If the market wants to go higher this seems like a good place to launch from.  We still have the problem of extremely low VIX to deal with.  If we break the 100 instead of launching a trip to the 200 SMA could be in the cards.  That would be about 50 points or so lower from here.

The counts continue to be braided.  A resolution should be coming up fairly soon.

The consolidation continues.  Some day I presume it will end.  I don't know what else to say.

This is an interesting read on inflation.  Inflation – The Good & Bad 01-20-17


Friday, January 20, 2017

Daily update 1/20

Inauguration over.  Half this country is happy and half is not.  For me actions speak louder then words.  We will see what actually gets done.

SPX made a doji bar right into the apex of the triangle formed from the top line in the consolidation and the uptrend line from the Feb. low.  By default we will end up out of this pattern next week.  Once again we saw an early morning high and afternoon low.  It is starting to become a pattern again.  There is clear resistance around 2275.  Breadth was +61%.  New highs were stable at 85.  New lows also stable at 21. 

The braided action continued today with a slight positive cross.  Indecision.

The consolidation continues.  I have heard a few people say there has been a tepid reaction to many earnings reports.  As we get more reports the market might decide to have an opinion on whether it likes what it is hearing or not.  So far it has been pretty non committal.  So we wait until it decides what it wants to do.

Have a great weekend.


Thursday, January 19, 2017

Daily updatre 1/19

A bit of selling ahead of the inauguration.

The market opened up slightly. but sellers showed up immediately.  This was another day of morning high and afternoon low.  Breadth was -73%.  New highs were close to yesterday's number at 80.  New lows picked up to 23.  SPX closed slightly below the 20 SMA and the uptrend line from last Feb. 

The red line crossed above the green.  A braided pattern is starting to develop.  Those tend to not last very long before the market starts moving with a directional bias one way or the other.  Sometimes it will head fake one way then reverse into a short term trend.

The inauguration is tomorrow and soon we will find out if the much talked about sell pattern will come to fruition.  The futures rallied through the election night victory speech.  The market might have a positive reaction to the inaugural address tomorrow.  What happens next week will likely be more telling.


Wednesday, January 18, 2017

Daily update 1/18 NYSE Short Interest Plunges To Lowest In Three Years

Lazy day, but the bulls got a green close.

SPX bounced off the uptrend line today, but remained below the upper line.  Breadth was slightly positive.  New highs dropped again down to 79.  The VIX is up the last two days, but remains rather low.  Price looks like it is coiling to do something.

The green count crossed back above the red, but remains below 50. 

The song remains the same.  The market is in consolidation mode waiting for something.  I am not sure what that something is.  Maybe more earnings reports. 

We are almost to the inauguration.  According to history the market is supposed to have a pullback after that.  I have seen this widely discussed.  That usually means it will be a self fulfilling prophecy or the market will do the opposite.  I have been wondering if the lack of selling pressure so far this year might have to do with the mid Feb. low last year.  People piled in off that low.  Why not wait the year for lower taxes unless something scary comes along to force them out earlier.  We might see more selling pressure in late Feb. or March.

There has been an incredible amount of short covering since the Feb. low. 

This is another sign the bulls are running the bears out of town.  There could be more to go if the short interest drops down to 2012-13 levels.  However, it looks like the bulk of the upside from short covering is over.  Bulls will need to provide most of the fuel to push higher.  Lately they have been a bit reluctant to do that.


Tuesday, January 17, 2017

Daily update 1/17

Trump trade coming off (XLF (-2.2%), IWM (-1.3%) and IYT (-1.1%)).  Those three ETF's had massive run ups after the election, but showed relative weakness today.

SPX made a new low in the afternoon today.  This is the second day we have seen that.  It is still too soon to say it is a pattern, but given that it was the prevalent pattern before the election it is possible.  Upon closer inspection of SPX I noticed it was developing a megaphone pattern on the daily chart.  Breadth was -54% so selling was rather concentrated.  New highs dropped under 100 again to 93.  I don't know if the uptrend line from the Feb. low is still important or not since it was broken once.  Price appears to be getting pinched in between that line and the top of the recent range.  Something has to give.

The red count crossed above the green again.  Neither side wants the ball at the moment.

The trading range continues.  However, the post election trade is experiencing some profit taking.  If that lasts long enough it could put some downside pressure on SPX.  Dow 20,000 remains illusive.  It is possible we don't get there in the near future.


Friday, January 13, 2017

Daily update 1/13

Yesterday afternoon's rally continued the first 30 minutes today.

SPX got above the upper trend line early today, but sellers showed up once again.  It even made the low in the afternoon.  You might recall we saw a lot of that action preceding the election.  This is the first time I have noticed it since.  I will be watching to see if that pattern becomes prevalent again.  Breadth was +59%.  New highs popped up to 129.  Resistance was very obvious today.

The green count picked up a bit, but remains below 50. 

The current action is slow and sleepy, but the weekly IWM chart is interesting.  A friend pointed out a very clear megaphone pattern on the weekly chart (tnx vixn).  Remember this is the index most clearly at bubble valuation.  Earnings are negative on this index now so there is no P/E officially.  However, I read the other day that if you take the stocks with positive earnings the P/E is around 250.  Bubble.  The megaphone pattern is a bit rare in indexes, but is often a reversal pattern.  What scares me the most about a bubble in small caps is how hard it is to get out.  When the tide turns on this index the exit will be very crowded. 

While most indexes were positive today the Dow was slightly negative.  The bulls quest for 20,000 remains illusive for now.  While dip buyers show up in SPX there is clear resistance at the highs.  Which side has the bigger hammer?  With the low VIX I am going to guess it will turn out to be the bears.  The pattern of the market running up into inauguration day then selling off has been widely noted.  I think I read or hear of it nearly every day.  It could easily be a self fulfilling prophesy at this point.  Inauguration day happens to fall on option expiration day this year.  That might be a short term top.  Will we make 20,000 before then?  We had no year end tax year selling last year.  We have not had any new tax year selling yet either.  I have to wonder if there isn't some pent up selling pressure waiting for inauguration day to be released.

Have a great long weekend.


Thursday, January 12, 2017

Daily update 1/12

Dip buyers save the day. 

The sellers came out at the open and sent SPX below its 20 SMA.  However, the selling eventually ended and the market slowly rose back up to minimize the losses for the day.  Breadth was -60%.  New highs dropped way down to 77.  New lows picked up a bit to 16.  It looks like there is still resistance near the top of the trading range.  With the 20 SMA getting ever closer to the upper trend line we are approaching a decision point. 

The futures dipped a ways below the 50 SMA, but found some buyers at the lower channel line.  Yet another amazingly narrow trading range.

The green count slipped considerably.  So much for the bulls attempt to get the market going up again. 

Both the short and intermediate bull pressure lines are showing slight negative divergences.  However, the long term line has made it up past the last peak in the red line.  That is probably a positive thing for bulls, but keep in mind we still have much less strength then we saw off the Feb. low. 

The low VIX is making the upside tough to come by.  Every time we get to the top of the trading range sellers show up.  While the Dow might hit 20,000 while we are in this range I don't think the market goes significantly higher until we get another pullback.


Wednesday, January 11, 2017

Daily update 1/11 Risk Appetite Index

A little more buying interest today.

The buying lasted into the close which pushed SPX up to the top of the recent range.  Breadth was strong again at +62%.  New highs picked up a bit to 117.  The intraday low pierced the 20 SMA.  Will the bulls engineer a launch off that MA and get through resistance?

The futures are just hanging out above the 50 SMA. 

The green line got across 50, but just barely.  The bulls are trying to show a little strength.

The Dow closed just 46 points from 20,000.  Another run at that tomorrow seems possible.  Whether it can stay there if it gets there is anybody's guess.

Interesting chart in this one.  Goldman "Concerned" As Risk Appetite Index Hits Record High

Speaking at a conference in London, Goldman MD Christian Mueller-Glissmann warned investors, "valuations are at very high levels. And that concerns us when it comes to making progress in stocks, unless you maintain a very high level of optimism."

"This is a chart which a lot of people have in the back of their mind right now. It's our risk appetite indicator. That essentially shows you across asset classes what the risk appetite is. And it has equity risk premium in there it, it has VIX, it has everything that reflects how bullish markets are and it's real time."
"And guess what, in the middle of December, that indicator had the highest level in the history of the indicator. We are not at the beginning of this optimism trade, we're really in the middle of that optimism trade."
 Now if they would be so kind as to tell us when the optimism trade was over! 


Tuesday, January 10, 2017

Daily update 1/10

Small cap stocks were in demand today.

The bulls did some buying early on and pushed SPX up and outside the trading range, but the sellers showed up once again.  Breadth was a strong +61%.  New highs increased a bit to 92, but were still low.  There is clearly resistance in this area.

The potential double top is still in play.  The futures ended the day just above the 20 SMA.  Will they launch or break?

The green count almost got up to 50.  That is the highest it has been in a while.  Will the bulls show up again or will the bears strike back?

The trading range continues along with the low VIX.  Status quo for now.


Monday, January 9, 2017

Daily update 1/9

Pretty bland day.  The NASDAQ saw a bit of buying.

SPX came back into the trading range as Friday's break out failed immediately.  That probably increased the risk of breaking out the bottom again.  Breadth was a fairly broad based -62%.  New highs dropped way down to 68.  Momentum is waning.  No wonder with the VIX under 12.

The futures are showing a potential double top, but mostly a consolidation.

The green count remains below 50.  Not a lot of excitement here.

During most of the last few years most bottoms have been in the shape of a V and most tops have been sideways patterns that broke down instead of up.  These tops always seem to coincide with a VIX around 12 or lower.  This looks like it could be forming another one of those tops.  With earnings coming up anything can happen.



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