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Tuesday, May 2, 2017

Daily update 5/2 Hussman on exhaustion gaps

Lets call it a draw between the bulls and the bears.

The pause continues.  Breadth was dead even.  New highs were stable at 176.  New lows dropped a bit to 34.  Still elevated this close to the highs though.  Volume was oddly high.  High volume and low volatility near highs is usually indicative of distribution.  It was not a very good day for bulls.

The futures hit the 20 SMA shortly after the open.  The bulls showed up on cue and started a bounce.  However, it did not get very far before the sellers showed up.  Resistance is still wining at least for now.  I see AAPL was down after earnings so that is unlikely to be a catalyst for an upside break out. 

The green count slipped further today and is now below 50.  The bulls are slowly but surely losing their grip.  They need a shot of momentum pretty soon or the market is likely to head down.

Tomorrow is another FED meeting.  No policy change is expected.  The market expects a rate hike in June.  If the FED says something to change those expectations it could be market moving.  Hard economic data so far this year has been truly poor.  However, there seems to be an expectation things will pick up in Q2.  Car sales in April were more negative then expected.  That probably won't persuade the FED to back off though.  I think I am one of the few people that is still worried about a recession.  I have seen nothing to date that suggests the economy is picking up.  There are some signs it may even be slowing again.  Recent data coming out of China has clearly been weaker then expected.  You might recall the sell off in early 2016 was largely because of worries over China.  That could resurface.

With the futures hitting the 20 SMA today a launch or a break down below the MA should be forthcoming soon.  I think the odds are starting to point to the downside, but until it happens the bulls may still win.

I have been talking about the 3/1 gap up as possibly being an exhaustion gap.  John Hussman has an interesting article on the topic.  Exhaustion Gaps and the Fear of Missing Out

This is an interesting chart to say the least.   I think there is one caveat these days.  Ever since the mini crash back in Aug. of 2015 the NYSE has been much more proactive at getting stocks open for trading.  I think that has made it easier for SPX to gap then it used to be.  With that said I believe the 3/1 gap would still have been big enough to trigger an event on this chart even the old way the NYSE operated.  However, the market does not always roll over immediately.  We could still be in for more upside even if we are eventually headed for a big sell off.


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