Daily update 2/28

Weaker day then it appears at first glance.

The Dow failed in its quest to set a new record high close for the 13th day in a row.  Breadth was -62% which was quite weak relative to the small amount SPX was down.  There was relative weakness in small caps, tech and transports.  This might be a one day thing though.  I heard Art Cashin talking about rumors going around that a big fund was doing some re-balancing from stocks to bonds.  Over the last several years it has been common for the market to reverse whatever it does on the last day of the month the next trading day.  New highs were down considerably to 130. 

The futures are up considerably as I write this.  Of course with the president speaking tonight anything can happen.  So far the 20 SMA has clearly provided support.

The green count has slipped below 50, but remains above the red. 

The market is consolidating at the highs.  If investors like what the president says tonight another move up is possible.  I suspect SPX 2400 might provide some resistance.  However, nothing has stopped the market so far.

The R2000 turned its short term trend to neutral today. 

Bob

Daily update 2/27

Another day, another record close.  I believe that makes 12 in a row for the Dow.  I heard that was a feat not achieved since 1987.  Obviously that was not a particularly good omen for stocks that year.

This is starting to look like a slow creep up pattern.  Those can reverse sharply, but they can also go on for a while.  Breadth was +56%.  New highs were 168. 

The futures stuck their head above the upper channel line today, but failed to stay there.  SPX made a new high close, but the pattern here looks more like consolidation.  The ADX has tailed way off so we no longer have any particularly high odds of a quick retest of this high should the market start a pullback in the near future.

The green count picked up a bit today.  I mentioned on Friday that getting back to the mid point might spark some buying by the bulls.  That happened today, but the buying was pretty tepid. 

The market is still looking tired to me.  Whether that matters or not remains to be seen.

Here are a couple of interesting articles a friend sent in.
When Speculators Prosper Through Ignorance
Borderline

Along the lines of the second article I heard some of Trump's speech today in which he said they have to do the healthcare changes before they can do the tax changes.  I know this last leg up started with a thrust that appeared to come from his comments about details of a "phenomenal tax package"  to be coming soon.  Given the comments I heard today I don't see how we get details of the tax plan until after we get details of the healthcare plan.  I could be wrong, but I think the healthcare stuff is very complicated and won't be that easy to get changes passed.  I think the odds the market gets disappointed on the progress of changes are rising.

Bob

Daily update 2/24

SPX makes a slight new closing high.

The dip buyers came out early on to take advantage of the gap down.  No market is too extended to buy.  Even though we got a new high close breadth was slightly negative.  New highs dropped way down to 111.  Most of the buying came in that last 35 minutes in a ramp up into the close.  Those end of day moves are not all that reliable for future direction.

Last  night I wrote this about the futures.  "However, they ended the day back inside the channel.  That could mean the run is over for now unless the bulls show up in the morning and send the market higher."  The bulls did indeed show up this morning and they did push the market higher.  However, that push was not exactly the strongest one we have seen.  The futures are actually still inside the channel.  That means the bulls need to show up again on Monday to keep the upside pressure going.

The green line dipped quite a bit today, but remains above 50.  With SPX at a new high close this could be construed as a possible negative divergence.  However, the bulls sometimes start buying again in the mid point area.  Another thrust up on Monday would not be a surprise with FOMO running so high.  This last move up was sparked by DJT saying a phenomenal tax package was coming soon.  Having watched the goings on in D.C. for a lot of years it strikes as a bit hard to believe that this tax thing will be all wrapped up in a pretty package any time soon.  There might be at least a little risk the market gets disappointed at some point with the progress or with the details.  While the market seems to be running on fumes it is impossible to say how long those fumes might last.

Bob

Daily update 2/23

Sellers came out of the woodwork on the gap up.

The futures were showing strong upside momentum going into the open and the breadth started out at +69%.  Under those conditions for quite some time the bulls have showed up to push the market higher intraday.  Instead we had a sizable intraday sell off.  Breadth ended the day +51%.  There was considerable selling into strength today.  New highs were still strong though at 207.

The futures hit the 20 SMA on the early morning sell off and bounced.  However, they ended the day back inside the channel.  That could mean the run is over for now unless the bulls show up in the morning and send the market higher.

The green count slipped again today.  This is the lowest it has been since 2/9. 

The market is losing some momentum.  The weakness we saw in IWM and IYT yesterday continued today and spread to technology.  The SOX was down over 1.6%.  The market is certainly extended enough to justify a rest or pullback.

Bob

Daily update 2/22

A sleepy day.

It was an inside day on SPX.  Breadth was -54%.  New highs slipped down to 197.  More notable was the decline in the transports and small caps.  Quite a bit of relative weakness there.  They have both been lagging SPX a bit since back in Dec.  Especially the transports.

The futures are kind of sliding up the upper channel line.  Until they fall back in there is not really much to say.

The green count slipped a bit today, but remains plenty strong.  It is looking like we have passed the peak momentum for this leg up.  The price peak is a different question though.

The long term lines are showing a lower peak.  This leg up since the election is not particularly strong in either the intermediate or long term lines.  While there has not been any noticeable selling pressure these lines are weak enough it would not take much to turn them red.  Until a sell catalyst comes along that is not likely to happen though.

This is a look at the XOI index.  While oil has been trading sideways in the 50s this index has been weakening.  Past history shows that most of the time when XOI and oil diverge it is the direction of XOI that is usually most correct.  The COT data shows the commercial hedgers have the largest short oil futures position ever.  The position has eclipsed the short position from mid 2014 just before the initial oil price collapse.  Recently I was reading about record gasoline inventories.  This looks to me that some time this year there is likely to be another oil price decline and it could be significant.  How much that might affect SPX is hard to say.  There were times in the past when it would trade down with oil, but overall SPX is at highs and oil is far from it.

Whenever the market looks a little tired along comes another thrust day up. 

I was thinking of this quote from John Hussman last night when I was writing the blog, but did not have the time to find it. A reader (tnx sunny) located it for me. "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak."  Very true.

Here is a look at the financial conditions index for the U.S.

The index is barely above 0 even with the stock market flying high.  While the market is acting like it did in 2013 notice the difference in the economic conditions in that year.  The dip into negative territory that was during the so called "taper tantrum".  Most of that year the index was well higher then we are seeing now.  This makes sense to me as we know defaults are rising and credit is tightening.  The stock market is a good part of this index.  Imagine what it would look like if the market was tanking instead of at new highs.  The European stock markets are also doing well how do things look over there.

Things in Europe are similar to what we have in the states.  Maybe just a tad weaker.  Certainly not screaming all is well is it.

It is clear to me that things are not as rosy at the moment as global stock markets would have us believe.  The real question though is will the economy catch up or not.  Only time will tell.  For now there is still the risk of recession.

Bob

Daily update 2/21

More panic buying.

SPX is approaching 9% above its 200 SMA.  It has not been that far above that MA since 2013.  Breadth was +68%.  New highs expanded to 270 which was the highest since 1/25.  I don't really know what else to say about this chart.  FOMO is strong at the moment.

Last week I mentioned the futures hit the upper channel line and bounced which could continue the rally.  The bulls took that positive setup and ran with it some more.  A confirmed break of that upper channel should indicate a longer pause/consolidation phase is starting.

The green count turned up again, but is a bit below the prior peak.  The bulls are still firmly in control at the moment.

The trouble with this kind of pattern is there are two quite different scenarios it might end with.  Will we get another consolidation phase or a sharp reversal.  It is possible that we keep going until everybody gets in that wants in.  That could leave us with a bit of a buying climax that leads to a sharp reversal rather then a consolidation.  Too bad there is no way to know.  We will deal with that once it stops going up.  Keep in mind the market is extended enough that could happen at any time.  Of course an extended market in runaway mode can keep on running.   I would venture a guess that this price pattern will make nearly everybody look a little foolish in the end.  Most people will either sell to soon or too late. 

Bob

Daily update 2/17

Inside day.

Despite being an inside day SPX closed at a new high.  That is one extended market.  A lot of short term tops happen on option expiration week.  Breadth was -53%.  That is negative breadth two days in a row at the highs.  That looks like a tired market.  New highs dropped way down to 116.  That is the lowest they have been since 2/8 which was the day before this last leg up took off.

The futures came in contact with the upper channel line and bounced.  If this current leg up has more to go it should keep going from here.  Should the futures get a confirmed close back inside the channel then odds favor the market being in consolidation mode. 

The green count fell a bit more today.  It appears likely we have passed peak momentum, but there could still be price appreciation. 

This is quite the interesting situation.  To listen to people talk you would think the economy was flying along.  The current GDP reading for last year is +1.6%.  That is hardly flying along.  It is way too early to tell what this year will bring, but there are some headwinds.  Rates are higher, the dollar is higher, defaults are rising and credit is tightening.  I am still struggling to understand why the leading economic indicators are showing so much strength since the Feb. 2016 low that has not  translated into actual growth.  Inflation on the other hand has picked up considerably around the world.  I see anecdotal evidence of weakness rather then strength.  I actually heard a tire commercial the other day on the radio saying they would finance the purchase of tires.  I am pretty sure I have never heard of such a thing in my entire life.  Is that something you would see in a strong economy?  Confusing. 

The week after Feb. option expiration is noted from some weakness.  A pullback next week would be normal especially as tired as the market looks.

Even in this busy world we all need to make time to exercise.  If a busy polar bear can do it shouldn't we humans be able to?

Have a great long weekend.

Bob

Daily update 2/16 Industrial Production (IP)

Apparently some of the buying the last few days was caused by a large fund covering their position.  According to CNBC this morning that particular trade was over.  Curious the market did not rally today. 

That is a hanging man bar.  After a long run up that could be significant.  SPX needs to close below today's low to confirm the potential of a reversal.  Breadth was -55%.  New highs fell a bit to 193.

The ADX has turned down on the futures which suggests they have moved into consolidation mode.  The short term uptrend  was strong, but it is probably time for a rest.  Whether that turns into an important reversal remains to be seen.  High ADX readings often mean a retest of the high or low before a reversal occurs.  However, sometimes they just reverse without that test (more often at bottoms) and when that happens it can be sharp.  A pullback to the red line would be perfectly normal and could find support there.  Below that and we could be in for a more significant pullback.

The green count turned down a little bit today from overbought.  We are probably past peak momentum, but not necessarily peak price.

From what I understand the fund mentioned above started covering their position when SPX crossed 2300.  That encompasses almost the entire last leg up.  Maybe that move is a bit artificial.  Would that make a bigger reversal more likely then a sideways consolidation?  Time will tell.  The first warning sign would be a close below today's low.  If we keep going up from here then we know it really is people still piling in.

Here is a look at the latest IP chart.

The pop in Dec. was largely if not entirely due to the extreme cold weather across the northern half of the country.  The move back down in Jan. is largely due to the much warmer weather in Jan.  Notice that IP is just about where it was back in July.  We still do not have a clear uptrend in place to indicate the economy is getting stronger.  This is muddling around.

Bob

Daily update 2/15 McClellan summation index

This has to be what euphoria looks and feels like doesn't it?

The buying panic continued today.  Breadth was mediocre at +55%.  New highs expanded to 256 though.  I am pretty confident this is largely individual investor money pouring in.  So far the urge to take profits has been held back.  Hard to say what the magic number is for profit taking, but I am sure there is one.

The green count finally reached overbought status.  Whether that slows down the buying panic I cannot say.

There is only one thing wrong technically that I know of.

The McClellan summation index is negative.  Notice it was also negative back in 2015 as the market was topping over that summer.  This is an unusual condition with all indexes at new highs.  One other example is the summer of 1998.

While the correction from the 98 high was short lived it was nearly 20%.  In 2015 many people were aware of technical imperfections in the market.  That led to a long sideways consolidation.  However, this is more like 1998 in that nobody is talking about technical problems with the market.  I can understand that since this is the only oddity I know of. 

I don't know how this is going to play out.  History shows very few instances of new highs by all indexes with the summation index negative.  Those instances have been significant.  Sometimes they have been followed by sharp pullbacks or bear markets.  The 2015 instance is the most benign occurrence of this condition I know of.  I am not sure we can count on that again.  The market boat is clearly heavily loaded on the long side.  Bad things have been known to happen when everybody is on the same side of the boat.  To me this rally is mostly on hope that the new president will fix the entire world's problems.  That seems like a tall order doesn't it?  I think it will be hard to live up to the market's expectations, but I guess we will see.

Bob

Daily update 2/14

Euphoria?

No price is too high.  Just keep on buying.  Breadth was just slightly positive.  New highs dropped a good bit to 193.  The rally seems to be thinning out a bit.

The green count is almost overbought now.  Unless the market is down big tomorrow it seems likely to get there. 

The fear of missing out (FOMO) appears to be running deep.  I believe the talk of the great tax plan coming soon is the main driver at the moment.  Clearly the market is in runaway mode.  It can keep going up even though the rally is thinning out.  Is anybody really going to sell before the tax plan is announced?  Depending on how high we are at that time it might be a sell the news event.  I wonder if there isn't a chance the new plan is being over hyped.  Until we get some details it is impossible to say.

Today turned the R2000 short term trend up.  Yesterday SPX turned up, but I forgot to update the table.  I do not like it when the trend turns up into a short term overbought situation like we have now.  Those cases rarely have much follow through.

Bob

Daily update 2/13 Treasury Receipts Turn Negative For The First Time Since The Financial Crisis

Bulls really chasing price now.

SPX popped up above the upper channel line.  Breaking out of a channel then coming back in often causes a break out of the other channel line.  We will have to see if this one comes back in or not.  Breadth was only +54% which is pretty weak for the size of the move.  New highs expanded to 259 which is pretty good, but still below the 322 we saw on 1/25.

The futures keep on heading higher.  There is actually room for a pullback to the red line which might be support now.

Despite the sizable move up the green count actually slipped a bit.  This goes along with the breadth to signal that maybe the day was not as strong as it appeared.

This is a lot like spring 2009 in reverse for me.  At the time I could not understand why the market kept going down with the FED doing QE and the government having passed a stimulus plan.  The market finally figured out that stuff was positive and went up, but for a month or so I was really confused.   As I look at the economic data it looks like we still need to be worried about a possible recession this year.  I see clouds in a number of pieces of data and no all clear sign anywhere.  I think this is largely retail investor money piling in now which is inherently somewhat scary.  It looks like there was a bit of profit taking in the market today.  Whether it will be enough to stop the advance remains to be seen.

I can't see any sign the economy is doing anywhere near as well as the pundits and the stock market would have us believe.  Credit standards have been tightening for 1.5 years.  Now we have this.
Treasury Receipts Turn Negative For The First Time Since The Financial Crisis

Interesting chart isn't it.  So tax receipts have never gone negative like this without being associated with a recession.  Based on the history of this data we should already be in recession.  As I have mentioned before the hard economic data does not match up with the soft survey based economic data.  What gives?

Bob

Daily update 2/10

Contact.

SPX hit the upper channel line and stopped dead in its tracks.  This would certainly be a good place for a pause or pullback.  Just in time for the one year anniversary of the Feb. 2016 low this weekend.  It will be interesting to see if the market is truly as happy as it appears to be or if it is just a lack of sellers.  Breadth was +67%.  New highs increased to 211.  Curious looking chart.

 
The futures extended the channel break out.  It will be important to hold the red line on any pullback though.

This is the highest the green count has been since 12/13.  Still a little short of overbought, but it could get there even without the market going higher at this point.

This appears to be a good place to make a short term top.  I don't know if sellers are going to show up or not.  It seems like that is a definite possibility.  The upper channel line will probably slow the market down.  Of course it could always crawl up below the line.  I think we might know more by the end of next week. 

Nothing like a good nap outdoors on a beautiful sunny day.

Have a great weekend.

Bob

Daily update 2/9

The market liked the talk that a tax package might be forthcoming in 2 to 3 weeks.

SPX makes new all time high and closes above 2300.  Breadth was +62%.  New highs increased to 156.  That is about half the new highs we had on 1/25.  There might be a rising wedge pattern forming since the 12/13 peak (marked by the red lines).  Today SPX hit the trendline formed from the last two peaks.  Whether that causes a pullback or not remains to be seen.

The futures broke above their prior overnight high.  Should they fail here there would be a possible double top.

The green count eclipsed 50 today.  The red count reached the lowest level since 12/13.  Still not overbought.

There is zero selling pressure in this market.  The most interesting thing I heard today was some guy on CNBC in a tease for an upcoming segment asking whether people should abandon the practice of waiting for the dip to buy stocks.  I missed the actual segment so I do not know what was said.  The fact that they were even asking the question in the first place should be scary for bulls.  Several years ago John Hussman showed a chart with an idealized bubble pattern showing ever smaller pullbacks.  If the pullbacks got any smaller these days they would not exist at all.  This all seems surreal to me at the moment.  I have no idea how much further up we go.

Bob

Daily 2/8 This Is How Out-Of-Whack US Trade Relationships Really Are

Zzzzzzzzzzzzzzzzzzzzzzzzzz.

Still no buying interest.  Breadth was +53%.  New highs dropped way down to 80.

The futures bounced off the 20 SMA, but failed to really go anywhere.

I have run out of ways to say this market is boring without using that word.  This market is boring.  I read somewhere today this is the longest streak in SPX's history of days with less then a 1% range between the high and low.  Can the market get any more boring?  I guess we will see.  If I fail to get an update out it is likely I fell asleep.

I talked a while back in the blog about how imports subtract from GDP.  Here is an article with a lot of detail about the countries our trade is really out of balance with.  This Is How Out-Of-Whack US Trade Relationships Really Are

Bob

Daily update 2/6

Still no buying interest at the highs.

This is the second day in a row of morning high and afternoon low.  While not every day, it is happening very much like we saw before the election.  It is really odd price action for a market at the  highs.  Breadth was -52%.  New highs were stable at 137.  Investors showed up to sell the upside gap in the futures.  There is still resistance here.

The futures failed again to break out of the channel.  They are close to rolling over.

The green count picked up a bit today, but remains below 50.  The intermediate indicator is a tad weaker.

Resistance is holding for now.  So we wait some more.

Bob