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Thursday, May 25, 2017

Daily update 5/25

I added the title to last night's update only to forget to write about why I added that title.  At the last minute I thought about the China stuff I had read and ended up forgetting about the bear capitulation thing.  So I am going to start out with what I was supposed to write about last night.  Yesterday they interviewed Robert Shiller (famous for his CAPE P/E calculation) on CNBC.  He said that the market could gain another 50% over the next 10 years.  Jim Cramer mentioned that he had interviewed Mr. Shiller many times over the years and he had always been cautious and sometimes a little gloomy about the market.  Cramer seemed to think it was great that Mr. Shiller was  now joining the very big crowd of bulls.  I view it as just another well known bear capitulating.  While there was some of that in 2000 there was still a number of market skeptics at that top.  I think the number is much smaller now.  What I find most interesting is that a look at historical charts of indexes shows that big uncorrected moves always end in a meltdown.  Stock markets need those periodical 15-20% sell offs to cleanse themselves and keep margin debt from getting out of control.  We have not had a correction like that since 2011 and margin debt is definitely out of control.  The market going higher will only add to the probabilities it ends in a crash.

SPX extends it winning streak to a new high.  That is the good news for bulls.  I commented yesterday on the breadth being weak for a new high.  Well, it was even weaker today at +51%.  New highs expanded to 230, that was still over 100 less then we saw on 3/1.  New lows increased again to 41.  That should not happen on a trading range break out to new highs.

The futures stayed above the upper channel line today.  Coming back into the channel will indicate the upward thrust is likely over.

The green count picked up considerably today, but now it is almost to overbought levels.

The intermediate and long term bull pressure lines actually turned down today.  They are barely positive to begin with.

In the short term I think this is do or die time for the bulls.  This is one crummy looking break out to me.  Internals suck.  The small caps and financials were nearly flat on the day and did not participate.  Most of the talk was whether AMZN would hit $1000 or not.  It only got to 999.00.  The VIX closed at 9.99.  The VIX rarely gets this low and when it does the market always struggles. 

The last two thrusts to new highs came after election results that had caused the VIX to rise over 20 without much of a sell off in price.  With nothing to worry about that is unlikely to happen again.  If it takes the VIX getting over 20 again the excite buyers SPX will likely have to have a bigger pullback.  I think the internals are too weak and the VIX to low to support this breakout.  If SPX closes back below 2400 it is likely to bring out more selling this time.  If the market continues up I would expect it to be slow and choppy.

Today turned the short term trends for SPX and COMPX to up and R2000 to neutral.


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