Daily update 4/28 My confusion

Resistance winning so far.

The sellers showed up shortly after the open and sent SPX on a slow dribble to the down side most of the day.  SPX stabilized late in the day.  Breadth was -59%.  New highs dropped considerably to 162.  New lows have popped up a bit in the last two days with 29 of them today.  I would characterize today as a steady hitting of the bids.  No panic selling, just slow methodical taking of money off the table. 

The futures closed back inside the channel at the end of the day.  That usually means the accelerated up move has ended and we are starting a consolidation phase.  Most of the time the futures will contact the 20 SMA next.  They could pullback to it or wait for it to catch up.  Given the potential for a double top, breaking the 20 SMA could usher in some more selling. 

The green count caved in a bit today.  The bulls may be giving up here.

It is probably still possible the market pulls itself together and breaks out on the upside, but today's action did not look good.  I think my assertion last night that the bulls probably need a positive news event to get the market flying up again still holds.  A lot of companies have reported now and earnings are as good as expected.  However, that has not been enough to inspire buyers to push prices higher.  What will then?  The lack of inspiration may be related to politics.

In Daily update 3/20 Industrial production (iP) I wrote

"I am going to throw this out there even if it might sound a little crazy.  There are some things I don't understand.  The last move up in early Feb. came after DJT tweeted out they would have a phenomenal tax package in a few weeks.  A few weeks later we find out they can't do the tax package until they do the healthcare changes.  I have a bit of a hard time believing they did not already know they wanted to do healthcare first.  So why talk about the tax plan?  Then they throw out a healthcare plan that practically nobody seems to like.  They say it has no chance to pass the senate at this time.  Next DJT claims that BO spied on him, but there seems to be no evidence of that so far.  Why would you say such a thing if you did not have some reasonable proof.  Over the weekend the G20 meeting ended with the possibility of trade wars.  Does any of this makes sense?  Now put those same actions into a context of wanting to spark a sell off in the market.  They set the market up for disappointment with the tax plan, but that didn't work.  Knowing they want to do the healthcare before taxes they throw out a plan that is very unlikely to pass.  That didn't work either.  Get radical and let the president sound a little nutty.  So far that hasn't worked either.  Start speculation of global trade wars.  The market didn't seem to notice that today.  If the objective is to get the market to sell off we will see more crazy things come out of D.C.  If that is not the objective, then I have no idea what they are doing. "

Since that time the market has not tanked and the stuff coming out of this administration has clearly gotten more crazy.  The so called phenomenal tax plan that was way delayed was not even a plan when announced on Wed.  I sure hope my theory of a plan to send the market lower is correct.  The alternative is scary.

Some days I feel like my head is going to explode trying to understand exactly what is going on.  On one end of the spectrum we have strong leading economic indicators and survey data.  At the other end we have some things going on that appear to be very bad.  Retail stores are closing at a rate that would exceed the number of closures in 2008.  The last two months saw negative retail sales growth which certainly will not help that situation.  Late payments and defaults are rising across all types of loans including credit card debt.  Government tax receipts are negative year over year.  Restaurants are complaining about a big drop in foot traffic.  Last month auto sales were abysmal despite massive incentives.  Iron ore prices are crashing.  U.S. steel  recently said the steel market was terrible.  The transports have not only been lagging, but are actually below their 2014 high.  Those kinds of things are usually associated with recessions.  The Wall Street pundits are telling us every day how great the economy is doing.  I haven't seen anybody concerned about a recession in a long time.  And yet I can't find real hard economic data to back up the optimism.  I find this situation extremely confusing.  I can think of no comparable period in modern economic history like this.  Historically this long into an expansion a recession has higher odds of happening rather than a long term sustained upturn in the economy.  There are several instances of a multi month spurt that rolls over into a recession late in an economic expansion.  That is a possibility for what happens over the next several months.  To date the market has been totally oblivious to anything that might be perceived as bad news.  However, markets can turn on a dime.  I think vigilance is the key word.

More technology for country folks.

Have a great weekend.

Bob

Daily update 4/27 Do tax cuts pay for themselves?

Pause day.

Mot much to say about today.  Breadth was slightly negative.  New highs were strong again at 262.

The futures dipped slightly intraday, but found support at the upper channel line.  If the market is in runaway mode the futures should stay outside the channel.  Closing back inside the channel usually means a pause or pullback to contact the 20 SMA.

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

Will resistance hold or will the bulls power through?  The intraday action seems to indicate considerable resistance in this area.  It may take a positive news event to break out.  I think it is wait and see time.

Sometimes I wonder what happens to people's brains when they become part of the government.  The current administration is talking major tax cuts saying they will pay for themselves.  Over the years I have heard many economists claim tax cuts pay for themselves.  I have yet to see anybody provide data that actually proves it.  Just because people repeatedly say something that does not make it true.  Look at this chart and see what you think.

Does this chart even need any commentary?  The last two major tax cuts put this country on the path to insolvency.  What are the odds it will work better this time?  The U.S. recovered from a high debt to GDP ratio after world war II because that surge in the ratio was caused by war expenses.  Once the war ended the increased costs went totally away.  We currently do not have any costs that will be going away.  On the contrary, the aging boomers will be increasing costs.  The only thing tax cuts will do today is hasten the day when the U.S. defaults on its debt.  Revenue neutral tax reform would be a different kettle of fish.  Currently that is not what I am hearing though.  Politicians and economists drive me absolutely crazy. 

Bob

Daily update 4/26

Rejection at 2400.

SPX popped up to 2398 mid day, but ran into sellers before 2400.  After a selloff it rallied back to try again, but was met with more sellers.  A smaller bounce in the afternoon rolled over which led to selling into the close.  I guess some investors were anxious to sell.  Sometimes they wait at key levels to see if the market stalls and sell if it does.  Not the case today.  Breadth was +54%.  New highs were strong again at 282. 

The futures were really extended as SPX approached 2400.  Is this going to be another failure to stay above 2385?

The green count turned down a little bit more today, but remains well above 50.

Today's reversal on a test of the high leaves SPX with a possible double top.  Clearly there was resistance there today.  With a little consolidation or pullback it could turn into a bullish cup and handle.  There are plenty of negative divergences around, but those have not stopped this market very often in recent years.  If 3/1 was an exhaustion gap then this retest should fail and the market should head lower.  The trouble is I don't know how to tell if it was an exhaustion gap without the benefit of hindsight.  I think it wise to pay attention to what the market does over the next week or so just in case.

Bob

Daily update 4/25

Upside follow through.

Today's high fell just a few points short of the 3/1 close.  We ended the day with the second highest close ever.  Breadth was +65%.  New highs expanded again to 296.  Volume was even higher then yesterday. 
 

The futures easily cleared yesterday's resistance.  This is the third trip above the 2385 level.  The other two times did not last long.

The green count actually dipped slightly today which seems a bit odd.  Notice the big negative divergence in the intermediate indicator.  That will be important if the market ends up turning back here. 

SPX is retesting of the 3/1 high.  Is the 2400 level still going to be resistance?  I would think the bulls would make sure SPX gets to 2400 in the next few days just to see what happens.  Since this is the third test in this area I would expect a bigger pullback if the market fails to break out and move higher.  Whether we go significantly higher or not likely depends on how investors in general feel about the earnings picture.  I heard Bob Pisani talking about a number of companies raising full year guidance.  The trouble with this kind of reporting is we don't really get the full picture.  Of all the companies reporting so far how many have raised full year guidance versus lowered?  It is really what investors think will happen in the next couple of quarters that will drive price. 

Bob

Daily update 4/24 Indiviual investors piling in

French election resolved.

The French vote brought out buyers all around the world.  Breadth was +68%.  New highs expanded to 245.  That is the highest since 3/1.  The volume was strong.  SPX did not make much upside progress after the open.  With the high volume that means there were quite a few people selling into the strength.

The futures peaked out before the open.  Notice they slightly crossed the red resistance line.  The sellers kept the futures below that line all day during market hours.  Apparently we still have resistance there.  The question is how stiff is it. 

The green count shot up today and is just slightly below overbought levels.

SPX is once again into the 3/1 gap.  Will the bulls keep the upside pressure on?  Will the apparent resistance win out?  Was the French election all that was holding back the buyers?  I guess we will find out in the days ahead.  The short term trends are up across the board.

This is a warning sign for the bull market.

Charles Schwab, the investment brokerage firm, announced that the number of new brokerage accounts soared 44% during the first quarter of 2017.  Schwab stated that individual investors are opening up stock trading accounts at the fastest pace the company has seen in 17 years.

You might recall that 17 years ago was when the dot.com bubble popped.  Wall Street can no longer say this is a hated bull market.  This is the final phase.  The question is how long will it last and how high will the market go.

Bob

Daily update 4/21 How The Passive Investing Mania Undermined Its Most Basic Assumption

Nervousness in front of the French election this weekend?

SPX closed back below the 20 SMA.  Breadth was -52% so the selling was not very broad.  New highs cane in at 109.  Rather light volume for an option expiration.

The futures hit the 100 SMA and turned back.  This afternoon they sold off to the 20 SMA then bounced.  So far the bounce seems to be alive.

The green count picked up slightly despite the down day.  No technical damage from today indicated here.

Both the short term and the long term bull pressure lines are still negative.  The intermediate lines are slightly positive.  The current rally attempt is having a bit of trouble getting going. 

The current rally does not have a lot of technical support behind it yet.  However, it is possible that nervousness in front of the French election is holding the buyers back.  The price action since the low looks kind of like a bear flag.  The bulls need to show up with some force next week and break up that pattern.  Otherwise, there is a risk the market rolls over and heads down again. 

This is an interesting article.  How The Passive Investing Mania Undermined Its Most Basic Assumption

More technology for country folks.

 Have a great weekend all.

Bob

Daily update 4/20 Industrial Production (IP)

The bulls showed up right on cue.

SPX was above the 50 SMA for a while intraday, but fell back below it at the close.  Unlike the 4/17 up day the volume was strong today.  That suggests this bounce should have a better chance of continuing higher.  Breadth was +68%.  New highs expanded a bit to 119.

The green count picked up considerably today, but remains below 50.

Today looked like a good kick off day with strong breadth and volume.  The bulls still need to follow through.  We did not get a great selling climax into the low.  It is possible sellers show up again before SPX gets to the high.  The VIX closed just above 14 so there is not a lot of oversold fuel in the tank.  I am not exactly sure how earnings season is going.  I keep seeing stocks highlighted on CNBC beating expectations, but ending the day in the red.  With VIX already this low it will take people feeling positive about earnings to drive SPX to new highs and beyond.  I guess we will see what develops. 

Update:  SPX and COMPX turned their short term trend to neutral.  R200 turned up.

The latest IP reading has quite a jump to the upside.

This is a positive sign if it survives future revisions.  I also want to see IP continue to go up from here over the next few months.  I do not know if seasonal adjustments played a part in this or not.  Outside of the early snow storm in March the rest of the month temperatures were well above normal over most of the country.  Now that we are well into spring the weather will have much less impact. 

Bob

Daily update 4/19

Kind of the opposite of yesterday.

Yesterday we started out weak, but failed to break down.  Today we started out strong, but failed to rally.  Well at least in SPX.  Most indexes were positive today.  The transports were even up .6%.  The breadth was slightly negative again.  New highs were stable at 86. 

The futures touched the 200 SMA again, but so far are holding above it.  This is clearly a key line in the sand.

What a strange day.  Oil tanked after the inventory data came out and I suspect that was part of the sell off in SPX.  There was a build in gasoline inventories, but I don't have a clue why that caused such a negative reaction.  I have seen so many days when the inventory data caused a spike down in the price of oil only to see the move reversed and send oil to a new high that day.  I don't know if there will be any downside follow through on oil or not.  It might have been a one day wonder on the downside.  As long as the futures are holding that key 200 SMA there is still the potential for a bounce. 

It is coming up on one month since the 3/21 smack down.  The dip buyers have been busy loading up this entire time.  A break down here is likely to bring on more urgency in the selling.  I don't have any idea what the odds of that happening are.  I think the bulls need to show up tomorrow to get the market out of trouble.  The futures have held support for several days, but there is a limit how often a support line can be touched without breaking.  I think we must be getting pretty close to that limit.

Bob

Daily update 4/18 Irrational Exuberance Part Deux?

Dip buyers still showing up.

Despite the market opening down it failed to break.  Breadth was -67% mid day, but ended up just barely negative.  New highs expanded to 94.  That all seems kind of positive for bulls.

The low was just a fraction above the key 200 SMA.  The buyers showed up on cue and push prices higher the rest of the day.  That appears to be a positive for the bulls.

The green count ticked up a bit even though SPX was negative on the day.  The bears are not acting very serious.

It appears there are enough dip buyers to absorb what little selling pressure there is at these levels.  It looks like the market wants to bounce to me.  With the VIX already down in the 14 range it is unclear how far a bounce might go from here.  We will have to see how fast the VIX drops if it gets going on the upside.

This is a pretty interesting read.  Irrational Exuberance Part Deux?

Do the FED pension fund managers know something the rest of the world does not?

Bob

Daily update 4/17 Big drop in U.S. government tax receipts

Bouncy, bouncy.

SPX ended the day just a few points below the 50 SMA.  The breadth was a strong +71%,  New highs came in at 80.  Volume looks pretty light. 

The futures ended the day right at the 20 SMA.  I mentioned the 200 SMA as possible support that was touched last Thursday.  That line provided enough support to get a decent bounce. 

The green count crossed back above the red line today, but remains well below 50.  Quite battle going in the market.  Neither side able to take full control so far.

Today was a nice oversold bounce.  The question is whether there are still sellers out there.  Can SPX clear the 20 and 50 DMAs just above?  It is certainly a possibility.  Lets see if the bulls will show up again tomorrow.

This a bit of a scary looking chart.

Source

The big drop is mostly from corporate taxes.  That probably has a lot to do with the big oil price drop.  Big drops like this have always been associated with recessions.  Will it be different this time?

Bob

Daily update 4/13

Slow motion decline.

This is the lowest close for SPX since the 3/1 high, but it is still above the 3/27 intraday low.  The blue bar indicates the close was below the lower Bollinger band so price is a bit extended short term.  That can lead to acceleration in the direction of the trend or a reversal.  Breadth was -68%.  New highs dipped down to 52.

The futures hit the 200 SMA which might provide support. 

The red count picked up today and crossed 50.  However, it is well below oversold levels.

SPX is testing the 3/27 low.  The VIX is still less then 16.  The best bottoms have come with a VIX over 20.  If SPX were to bottom here it might be tough to get much higher then the 3/1 high.  Despite beats by JPM and C the financials ended up in the red with SPX.  That is not a very bullish sign since the group was already correcting.  Clearly the last two days have seen lowered buying enthusiasm levels.  It could be geopolitics as bombs are flying.  That might not clear up right away and could get much worse from here.  On the surface the lack of real selling on this decline would appear to be bullish long term.  Sometimes it works out that way and sometimes it doesn't.  Some declines in bear markets start out that way as well.  I am not sure what exactly is going on.  We will have to wait and see how this test of the 3/27 low plays out.  There could be a lot of stops below that low if the market probes down there.

Breadth was very good and stock participation was fine going into the top.  However, there are a few things that bother me.  The transports failed to make a new with the Dow at the very end.  On this decline they have fallen well back below their late 2014 high they broke out above during the post election rally.  If the economy was truly accelerating I don't think that should have happened.  That makes sense with the data I have been seeing that is not showing any acceleration to this point.  The small cap stocks are also a bit bothersome.  While they are still above their 2015 high, they are well below the 12/9 high.  After the initial spurt off the Nov. low they have clearly lagged behind.  The financials are not acting all that well either.  XLF is well below its 12/8 high.  Recently iron ore prices are crashing.  That was how the big commodity down move of a few years ago got started.  This could be a sign the global economy is starting to slow again and could be a negative for basic materials stocks.  I know from studying economic history that sometimes after a period of weakness there is one last spurt of strength that rolls over into recession.  It is possible we are seeing that last spurt.  I can see how that 3/1 gap up could be an exhaustion gap that ended the bull market.  However, there is just no way to know that at this point.  I can't rule out a spurt up to new highs and beyond.  Quite the dilemma. 

Today turned the short term trends down across the board.

More technology for country folks.

Have a great long weekend as the market is closed tomorrow.

Bob

Daily updpate 4/12

Less buying enthusiasm today.

SPX closed below the 50 SMA.  The breadth was -66%.  New highs slipped a bit to 76.  No panic selling today, but there was plenty of hitting of the bids.  The bears kept the dip buyers from making any upside progress.

The futures popped up over the 20 SMA overnight.  However, sellers came in before the market opened and push them back down.  They are now sitting near the bottom of this month's trading range.

The red line crossed back above the green again.  Both lines remain below 50.  A bull/bear standoff.

Since the 3/21 splat there has been considerable dip buying enthusiasm.  However, each rally was met with sellers once price got above the 20 DMA on SPX.  Most of the time since 3/21 oil has been rallying.  Maybe that was helping the dip buyers enthusiasm level.  Today oil sold off and buyers were very laid back.  Maybe that was just a coincidence and maybe it wasn't.  I read that oil production was at 20 month highs.  That was likely the catalyst for the move down.  Was that just a one day move or is the multi week rally coming to an end?  Was the dip buying enthusiasm in stocks related to the oil rally or something else entirely?  If only I knew the answers to those questions.  What I do know is that a break down in the market will leave three weeks of dip buyers underwater and unhappy.  Will they hold or fold?  A close below today's low suggests a move down to test the 3/27 low (2322).  If those dip buyers fold that would not take long.  A close above the 20 DMA could get the ball rolling on the upside.  That might be hard for the bulls to achieve at the moment.

In Daily update 3/20 Industrial production (iP) I wrote:

"I am going to throw this out there even if it might sound a little crazy.  There are some things I don't understand.  The last move up in early Feb. came after DJT tweeted out they would have a phenomenal tax package in a few weeks.  A few weeks later we find out they can't do the tax package until they do the healthcare changes.  I have a bit of a hard time believing they did not already know they wanted to do healthcare first.  So why talk about the tax plan?  Then they throw out a healthcare plan that practically nobody seems to like.  They say it has no chance to pass the senate at this time.  Next DJT claims that BO spied on him, but there seems to be no evidence of that so far.  Why would you say such a thing if you did not have some reasonable proof.  Over the weekend the G20 meeting ended with the possibility of trade wars.  Does any of this makes sense?  Now put those same actions into a context of wanting to spark a sell off in the market.  They set the market up for disappointment with the tax plan, but that didn't work.  Knowing they want to do the healthcare before taxes they throw out a plan that is very unlikely to pass.  That didn't work either.  Get radical and let the president sound a little nutty.  So far that hasn't worked either.  Start speculation of global trade wars.  The market didn't seem to notice that today.  If the objective is to get the market to sell off we will see more crazy things come out of D.C.  If that is not the objective, then I have no idea what they are doing."

Since that time the tax plan seems to be getting further and further away.  Ryan says the House has a plan, the Senate has a plan, the White House has a plan and they are all different.  Healthcare had been mostly sidelined, but I heard DJT once again say healthcare needs to be done before taxes.  I don't think there is much going on with an infrastructure bill.  Despite the post election rally seemingly built on the Trump agenda it is interesting none of the political mess has had much effect on the market.  I think it is very clear things are not going to happen any time soon.  Quick, act surprised.  Now the FED enters the scene with talk about balance sheet reduction and over valued stocks.  From where I sit the balance sheet talk came totally out of the blue.  All I can remember hearing was the FED wanted to normalize rates while maintaining the balance sheet.  What changed?  It certainly was not economic growth.  I think every time the FED talks about stock valuation they get criticized.  Why mention that now?  Doesn't it seem like both those FED talking points could be aimed at getting the stock market lower?  Now it seems that both the government and the FED are trying to get the market to go down without doing anything overtly to make it happen.  Maybe there is some other explanation, but I am having trouble figuring out what it could be.

Bob

Daily update 4/11

Almost a break down.

The sellers started out of the gate and sent SPX below the low of the last 10 days.  The sellers did not pile on so the dip buyers went to work.  Despite SPX closing slightly negative the breadth was +55%.  New highs were stable once again at 84.  SPX is still stuck.

The futures found support at the lower channel line.  That is a pretty tight range.

The green count picked up a bit despite the negative day.  It crossed the red line, but remains below 50.

There was no panic "get me out of here" selling on the break of the 50 DMA this morning.  Maybe that means the market is about to go up.  The only caveat is that there has been no selling into weakness all along.  The sellers seem to show up on strength when price is at or above the 20 DMA.  Maybe after today's action those sellers will reevaluate and put their hands back in their pockets.  I can't really say if that will be the case or not.  The selling appears to be profit taking since they don't want to sell into weakness.  But exactly who is doing that selling and how much more do they want to sell?  I think earnings will determine the ultimate move.  Can they beat expectations and give good forward guidance? 

Bob

Daily update 4/10

Yet another failure.

Despite a strong breadth day SPX was unable to stay above the 20 SMA even though it got 6 points above it intraday.  Breadth was +76% early in the day, but ended up +64%.  New highs were stable at 89.  Tough resistance. 

The futures are flat tonight so I guess Janet Yellen didn't give the market any help in her recently scheduled speech today after the close.  The futures made another attempt to get above the 100 SMA, but were sent packing.

The green count has a slight positive cross, but they are essentially even.  Talk about a non committal market.

The dip buyers keep showing up every day and push SPX above its 20 DMA.  Then the rally sellers show up and push it back below.  Neither side backing down so far.  I guess it will be up to the earnings season to determine where the market is headed from here. 

Bob

Daily update 4/7

Another failure for the bulls.

SPX tested above the 20 SMA again, but sold off immediately.  There is only 14 points between the 20 and 50 DMAs now.  Time for a decision soon.  Breadth was -51%.  New highs were steady at 70.  New lows actually dropped a bit to 11.  Buyers and sellers were taking turns again today.

The futures stopped dead at the 100 SMA like yesterday.  Not much change in the daily red/green chart so showing the weekly version tonight.

The weekly chart is showing a negative crossover for the first since the election.   Something I just noticed tonight when I was getting the chart ready involves the green line and the overbought red line.  The yellow circle represents the only rally between 2009 and 2015 that did not make the overbought line.  Since the start of 2015 the rally off the Feb. 2016 low is the only rally to achieve that feat.  There is clearly less buying enthusiasm off the lows.  That happens to correspond with the end of QE3.  Is that just a coincidence?  I keep thinking the FED talking about balance sheet reduction could easily reduce buying enthusiasm even more.

The short term lines crossed negative.  The intermediate lines recrossed green a few days ago.  The long term lines remain red.  With all the lines near 50 the buying and selling pressure on all time frames is pretty even at the moment.  That condition does not usually last very long.

Everything seems to point to a resolution to this consolidation fairly soon.  Since the 4/5 big reversal the 20 DMA has been rock solid resistance on SPX.  Sellers showed up very quickly when that line was reached.  That suggests the resolution has higher odds of being down doesn't it?  I think we will find out next week.

Here is a new series to lighten up your weekend.  It is called technology for country folks.

Have a great weekend all.

Bob