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Wednesday, May 10, 2017

Daily update 5/10 “The Great Narrowing” of the S&P 500

SPX makes another run at 2400.

SPX never quite made it there.  Apparently sellers were sitting there waiting.  SPX made several attempts intraday, but could only manage a high of 2399.63.  The last two days looked like there were simply no buyers above 2400.  Those days were not strong internally as breadth was negative all day.  The story was different today.  Breadth was positive all day and ended at +60%.  Despite the stronger internals SPX could not crack 2400.  I think that indicates we still have resistance there.  New highs slipped quite a bit to 111.

The futures have been holding on to 20 SMA support.  However, they have been making lower highs the last few days.  Is resistance slowly moving down?

The holding pattern continues.  The bulls buy the dip and the bears sell the bounce.  Sooner or later one side will give in.  In the mean time I am running out of ways to say the market is going sideways.  At least the quiet week gave me time to code my new trend indicator.  I am watching 2389 on the downside and of course 2400 on the upside.  Even in the low volatility market of the last several years that is an unusually tight range.

There sure is lots of talk of the low VIX.  I read a column the other day saying that nothing bad has ever happened with SPX at a new high and the VIX this low.  While that is true we only have 30 years of data.  You might recall I noted that in the same 30 years every time the VIX dropped below 20 before SPX crossed above its 200 DMA the market eventually tested the recent low.  Of course soon after reporting that fact the market proceeded to move to new highs.  Last spring the VIX did not work as it had for the prior 30 years.  Can we be assured it will work as it always has now.  Is it really safe to assume nothing bad will happen from here?  I don't know.  I know that we have a highly leveraged market that appears to be largely unhedged.  That is a recipe for disaster if some kind of catalyst comes along that causes serious selling pressure.  If only we could know if such a catalyst is coming soon. 

Interesting read about how a handful of stocks have held up SPX since March 1.
“The Great Narrowing” of the S&P 500


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