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Wednesday, February 15, 2017

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.


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