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Friday, June 30, 2017

Daily update 6/30

The bulls showed up to do some dip buying.

There was a sharp sell off in the last few minutes or SPX would have been up nicely.  Those late day moves on the last day of the month are usually reversed the next trading day.  Breadth was +58%.  New highs dipped a bit to 67.  New lows dipped to 15. 

The 100 SMA seems to be holding as support on the futures.  There is a decent platform to bounce from.

The green count increased, but is still slightly below the red count.  Both are below 50 so the power is up for grabs.

While June was up for the month SPX closed below the 6/1 close.  The entire month was a consolidation at the highs for SPX, but not exactly for QQQ.  Some money has rotated out of tech.  I don't have any idea if it is over or not?  July is usually a pretty positive month in general.  SPX looks like it could rally from here.  The VIX spiked up yesterday, but melted right back down.  It closed just over 11.  Can SPX get to new highs before it gets below 10?   Throughout the entire history of the VIX when it gets into the 9s the market stops going up.  Many things have been different in this bull market, but so far that has not.  June could be either a consolidation to go higher or forming a top.  I suspect SPX will get to a new high, but I don't have a lot of faith in its ability to make much more then that.  The bulls need to prove they will keep on buying with the VIX in the 9s. 

Some foreign names translate better into English then others. This is a tough one for an athlete.

Have a great weekend.


Thursday, June 29, 2017

Daily update 6/29 Yes, Ms. Yellen…There Will Be Another Financial Crisis

That was interesting.  That is the third day in a row of a big range.  Given the price levels it was not really all that big, but compared to what we have been having it is huge.

SPX briefly penetrated the 50 SMA, but then bounced considerably off the low.  SPX made a new low for the month which caused a lot of stops to be executed.  As soon as the stops were taken out it rallied strongly.  There must be a lot of pissed off traders out there.  Breadth was -68%.  New highs dropped way down to 70.  New lows picked up a bit to 27.

The futures went well past the lower channel line, but came right back up into it.  The -DI line got well above 35 which opens the door to a bigger decline.  However, the market usually bounces next.  I don't think we are headed for the big decline just yet, but keep an eye out in case I am wrong.

Even though SPX closed right about where it did on Tuesday the red count is considerably lower.  It is not real big, but it is a positive divergence.  Given how bullish the market has been this year that is probably enough to signal a likely low.

The big volume in QQQ continued today.  Much bigger then yesterday.  It thought about breaking that H&S neckline, but decided against it for now.  It will be real interesting to see what happens to this should the market rally.  With CNBC having FANG week the sentiment seems right for a top.  It could bounce from here and still end up failing.  I think what happens to this will be key for the broad market.

Intraday the VIX crossed 15, but closed at 11.44.  That should be high enough to get a new high in SPX should the market rally from here.  How far it might go past the old high would probably depend on how fast the VIX gets below 10.  For the bounce scenario to play out I believe the market needs to go up tomorrow.  Further downside in this condition could lead to a considerable pickup in selling pressure.

I guess I am not the only one thinking Yellen might be wrong on the financial crisis thing.  This is a pretty good read. Yes, Ms. Yellen…There Will Be Another Financial Crisis


Wednesday, June 28, 2017

Daily update 6/28

Buying panic.

I added an arrow for the last rate hike since the pattern has shown those days to be resistance.  The red horizontal line represents that day's high.  SPX came almost up to that line today.  Breadth was a very strong 70%.  New highs were 109.  New lows increased to 21.  That was a bit of a surprise to me.  That is once again elevated this close to the highs. 

The futures came back inside the channel overnight thus ending the sell off for now.  They almost made it to the upper channel line already.  The last bounce fell a little short.

The counts came together today.  With both below 50 there really is nobody in control.

QQQ rallied strongly on good volume.  This is certainly a positive development.  However, the bulls need to follow through.  This could be a one day wonder.  Too soon to tell.

When the tech stocks first started selling off it became obvious that money was rotating into small caps, financials, and the transports.  Those sectors had been lagging a bit recently.  That rotation continued today with those three sectors leading the way.  Strength in those sectors would normally be a bullish thing I would think.  However, there are two problems here.  The first is the low VIX.  It traded down below 10 today and closed at 10.03.  The market has failed to progress higher with the VIX that low.  The other problem is the rotation out of tech.  In one form or another tech has led the market higher for four decades now.  If big money is truly rotating out of tech I think it will be extremely hard for the rest of the market to go higher.  It is one thing to run lagging sectors back up to old highs.  It is an entirely different manner to keep pushing them into new high ground. 

With the VIX already down to 10 I don't have any confidence the bulls will show up again to keep pushing higher.  It is time for quarter end window dressing.  With the rotations going on that could mean some running in place the next two days.


Tuesday, June 27, 2017

Daily update 6/27 Yellen: Banks 'very much stronger'; another financial crisis not likely 'in our lifetime'

Sellers showed up.

The market largely shook off the unexpected hawkish comments from Mario Draghi.  Early on it looked like more of the same rotation out of tech into everything else.  However, later in the day news broke that the senate put off a vote on the healthcare bill.  The selling started to pick up and went on into the close.  The breadth was -63%.  New highs dropped way down to 73.  News lows remained low at 12.  This was clearly about selling the high flyers.

The futures are testing the 6/15 low and are just a few points above the low of the month.  They are outside the lower channel.  Moving back into the channel tomorrow should indicate the sell off is over for the moment.  Notice this is the first time they have closed below the channel since mid May.  That was a one day sell off.  Given the weak technical position we have now the selling could last longer this time.

The red count crossed above 50, but is well below the oversold level.

QQQ closed below the 50 DMA on a surge in volume.  How dare people sell while they are having FANG week on CNBC.   It looks like a possible head and shoulders top developing.  If this turns out to be "the top" in tech CNBC's FANG week will live on in market lore a long time.

The VIX only got up to 11.31 so it has not hit the important 11.5 level yet.  I suspect any bounce from here will fall short of new highs in SPX.  As weak as the internals were at the highs it is possible a bigger pullback is setting up.  Frankly that QQQ chart looks a little scary to me considering the sentiment at this very moment in time.  I would not be surprised to see SPX make a new high next month, but I suspect QQQ is done for now.   Will the dip buyers show up tomorrow or will the sellers return?

Is the market starting to lose patience on the Trump agenda?  In Daily updpate 4/12 I wrote "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."  Two months later and we are no closer to getting anything done.  How much longer will the market be patient? 

Yellen made some comments today I think she will live to regret.  I actually heard a guy on TV say we should be celebrating Yellen telling us we are unlikely to see another financial crisis in our lifetime.  If I had been the interviewer I would have asked him if he remembered when Bernanke said the subprime problem was contained.  If the next recession does not turn into a global financial crisis worse then the great recession I will be shocked and very pleasantly surprised.  I would even turn into a raging bull.  Imagine that.  While the major banks in the U.S. are in good financial shape the same cannot be said for many large banks in Europe.  China may turn out to be a problem as well, but we don't really know exactly what shape the banks are in there.  For the U.S. my concern is CRE.  Many smart real estate people say CRE is in a bubble.  Retailers are closing stores this year at a higher rate then they did in 2008.  Imagine what might happen in the next recession.  Much of that CRE debt is in the much smaller regional banks rather then the big ones.  I don't think they are in nearly as good of shape.  The subprime problem was miniscule compared to the CRE market.  On top of that we have many countries with debt/GDP ratios well above 100.  The global economy is weighed down by debt (which has increased by over 50% since 2009).  I expect a good chunk of that debt will implode in the next global recession.  I think we are heading for the worst times since the great depression.  I am calling it the great deleveraging.  I really hope I am wrong.


Monday, June 26, 2017

Daily update 6/26

The bulls ran the futures up overnight, but nobody came to their party after the open.  I think the VIX is just plain too low. 

The volume was super light.  Simply no buyers up here today.  The breadth was +62%.  That is pretty strong for the small move in SPX.  Technology was considerably red.  The rotation out of tech and into most everything else continued today.  New highs increased to 143.  New lows dropped way down to 8.  That suggest some buying in the recent laggards.

The futures got up near the upper channel line, but reversed sharply.  Here we are back at the 50 SMA again. 

The red count remains above the green, but below 50.  SPX was less then 4 points from its all time high and yet we could not get a green cross.  This seems like a negative divergence that could be big enough to mean something.

The tech sellers showed up on this mornings sizeable gap up in QQQ.  Volume increased considerably today.  There is clearly the possibility of a lower high and more selling to come.  The bulls need to show up again tomorrow.

They sometimes talk about the media especially magazine covers giving sell signals.  While there are some instances of bad timing, it is not something you can usually see in real time.  However, CNBC is having FANG week.  Seriously.  I could not believe it.  Now that you know that, take another look at that QQQ chart.  This might end up being one of those examples of the media calling a top.  Time will tell. 

I heard a guy on TV say you always have to be bullish when you don't have an inverted yield curve.  We did not have an inverted yield curve at the time of the 87 crash.  We might not have had one at the time of the 29 crash.  I don't have data back then so I can't say.  What I can say is that when margin debt is this high you have to be worried inverted yield curve or not.  That is especially true when nobody is worried like in our current situation.

Friday I wrote "The market is unlikely to go up from here with the VIX already that low.  I think odds are we will see more downside next week.  Get the VIX up to 11.50 or higher and the bulls might step in. Unless QQQ collapses again.  That could change the picture. "

I think today made it obvious the low VIX is a problem.  The action in QQQ today probably increased the odds QQQ rolls over.  I don't know if we are headed for a bigger pullback then we have seen since the 2016 low.  It would not take all that much to be the biggest pullback since then.  I do know this is the weakest technical position at the highs since 2015.  That does not always translate into a big pullback, but it is a good idea to pay attention just in case though.


Friday, June 23, 2017

Daily update 6/23

A while back I mentioned the poor guy on CNBC berated for asking what could go wrong in the stock market.  I guess I am not the only one to notice rather rude bulls.  Saw this quote today.

Perhaps you’ve noticed the belligerence of the bulls of late? How they all seemed to have lost any manners they should have gleaned from their upbringings in catty concert? 
– Danielle DiMartino Booth

This is a great example of group think.  If anybody dares disagree they get attacked until they shut up.  This is the same tactic used by the global warming people to quiet any scientific dissent.  I read personal accounts of scientists that found they could not get research published, lost grants, and sometimes verbally attacked.  No wonder they gave up trying to educate the masses.  The trouble is group think when it comes to markets always ends up bad.  Always.

Another narrow range go nowhere day.  Breadth was +65%.  New highs increased a bit to 103.  New lows dropped again to 37.  The re-balancing mentioned last night was done without any major movement in the market. 

The futures remain trapped between the 20 and 50 SMAs.  Maybe next week they will break out.

The red count turned down only a bit.  It remains above the green count and below 50. 

Despite only a little upside in SPX the VIX fell all day and closed below 10 again.  It has closed below 10 more times this year then it has in its entire history before 2017.  That is how odd this year is.  The market is unlikely to go up from here with the VIX already that low.  I think odds are we will see more downside next week.  Get the VIX up to 11.50 or higher and the bulls might step in. Unless QQQ collapses again.  That could change the picture. 

There might be a perfectly good explanation for this picture, but then again ...

Have a great weekend.


Thursday, June 22, 2017

Daily update 6/22 People giving up on $60-70 oil?

Mixed day.

SPX went totally sideways until the senate released their version of the healthcare plan.  That sparked some buying.  Late in the day the market sold off when news came out that several GOP senators would not support the plan.  Healthcare stocks especially biotech have been rallying lately.  I suppose that was in anticipation of the senate plan.  Now that it is out and might not pass there might be a sell the news reaction.  Breadth was +54%.  New highs came in under 100 again at 93.  New lows dropped to 67 as oil rallied a bit.  Still elevated though.  

The futures held the 50 SMA overnight.  They rallied above the 20 SMA intraday, but failed to stay there.  In limbo here.

The red count increased a bit today, but remains below 50.  The bears still have not quite taken control.

QQQ gapped up this morning then sold off to close the gap.  It rallied midday, but rolled over going into the close.  It ended the day well below the open.  Not exactly a sign of strength.  Volume declined considerably as well.  This could still roll over.

The last two little dips saw the VIX get over 11.5 before they ended.  The rallies ended with VIX near 10.  On this pullback the VIX has not gotten to 11.5 yet.  There may be more downside needed here.  SPX has had two narrow range days and little movement on the close.  It could expand the range in either direction from here at any time. Tomorrow is a re-balance of R2000 which will cause an increase in volume.  I don't know if that will have much effect on the broad market or not.

Ever since oil crashed I have heard analysts, people from energy companies, and traders all proclaiming oil getting back above $60 was just around the corner.  Over the last few weeks that seems to have mostly come to an end.  More and more people are now saying oil could stay in the 30s and 40s for a prolonged period.  The banks kept pouring money into cash flow negative energy companies right and left because oil was going to rebound.  That money flow might start to be reduced going forward.  That could leave some companies vulnerable.  That is likely to hurt the energy high yield market which is very large.  That could keep the damper on energy stocks.  The real question is whether this will negatively impact SPX.  It would certainly impact earnings.  The rebound in oil since early 2016 greatly helped SPX earnings.  The oil price had been fairly stable in the 50s since last June, but has now broken down.  If oil stays mostly down here or below it will negatively affect Q3 and Q4 this year.  Oil has been dropping with a stable dollar.  That indicates it is likely a supply and demand issue which is likely to persist.  Oil was weak in the second half of both 2014 and 2015.  Last year it was stable, but did not rally above the June high.  It seems to me the odds of oil staying in the 40s and below is pretty high.


Wednesday, June 21, 2017

Daily update 6/21

Bit of an odd day.

SPX was probably dragged lower by the continual drop in oil prices.  COMPX on the other hand found some buying.  Breadth was -61%.  New highs dropped again to 94.  New lows increased to 119.  That is the most new lows since last Nov. 

The futures found support at the 50 SMA.  They might still be headed to the lower channel line.  If the 50 SMA can hold long enough maybe they rally again.

The red line crossed above the green today, but is still below 50. 

All my internal indicators have negative crosses now.  This is where the market has to decide whether to rally again or pullback some.  The biotech stocks had a big three day explosion and IBB was up over 4% today.  I believe that sector is what kept the buying interest in NASDAQ stocks today.  Since they have just had that big explosion the odds of further upside in the short run are pretty low.  The bulls will probably need something else tomorrow to keep them interested.  QQQ is just below last week's high.  What happens here might have a significant impact on what the rest of the market does.  An upside break out tomorrow could set up a test of the high in QQQ and would probably stave off a pullback in SPX.  If we see more downside then it will be important to see if QQQ holds the recent lows at its 50 DMA.

More changes to the trend table.


Tuesday, June 20, 2017

Daily update 6/20 Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains

About face.

The selling started right at the open.  SPX closed below yesterday's low.  Breadth was -69%.  That is unusually high the day after a thrust to a new high close in SPX.  New highs dropped way back to 117.  New lows shot up to 92.  That is an awful lot of lows one day off a new high.

It looks like the pattern of touching the upper channel line and retreating to the lower line is repeating.  The futures made it half way there today. 

The green count dropped considerably today, but is still above the red line.  It is really low for just one day off a new high.  There was just no juice in that move to a new high yesterday.

Both the short and intermediate lines are already negative.  The long term line is barely positive.  There has not been much buying or selling pressure since March.  That let the market float higher.  There does not appear to be much strength underneath should selling pressure pick up again.

This was a weak day.  There is no getting around it.  Small caps and transports were beneficiaries of the original break in the NASDAQ stocks.  Today they both showed relative weakness to SPX and COMPX.  So much for that rotation.  This looks like a short term top.  The key might be whether QQQ breaks down to new lows or not. 

Since March 1 nearly every market internal has weakened considerably while the market crawled higher.  The one exception has been the advance/decline line.  I find this a bit puzzling when I look at breadth with the McClellan summation index.

This index looks at breadth 19 and 39 day EMAs instead of day to day like the advance/decline line.  It has been negative since last Aug.  That is an extremely long time.  Going into the May 2015 top it had been negative since Dec. 2014.  That kept price in check for over a year.  This is more like 2000.  Going into the top in March 2000 the summation index had been negative since July 1999.  I have data going back to late 1986 and those are the only three times the index was negative for such a long period of time while SPX moved higher.  This period is longest of any of them.  It might be telling us another bear market is coming.  I can only guess why the advance/decline line is not showing a problem.  A lot of people are banking on that meaning there is no trouble on the horizon.  I have to wonder if it has something to do with the massive amount of money that is now in passive indexing.  Those funds have to buy all the underlying stocks as the money comes in.  There are just so many divergences I don't think it is safe to say nothing bad can happen.  History would suggest there could be trouble at some point.  I can't think of any time in history when individual investors did something en mass like this move to passive indexing that worked out well for them all. 

There are changes to the trend table.

I have seen some articles on the global credit impulse over the last couple of months.  The index itself does not have a lot of history to study.  However, when I was looking at the chart in Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains I noticed something I missed before.  The chart is a bit hard to read on the individual countries so I had mostly looked at the global index itself.  Check out the chart.

We all know the subprime problem in the U.S. is what brought down the global economy in 2008.  That can clearly be seen by the gray indicator on the chart.  We also know that China announced a huge stimulus plan that I have long thought was what pulled the global economy out of recession.  We can see that in the green line.  We can also see another big push up in the green line starting in 2014.  That might be what has been keeping the global economy going the last few years.  However, look at the green line now.  It is seriously diving unlike any time on the chart.  It is looking like the gray line in 2008.  China went on a huge debt binge since 2000 and I have long been worried that a serious problem could develop there.  This chart shows the risk in China is rising.  Whether it becomes a problem remains to be seen.  However, there have already been two flare ups (Aug. 2015, Jan. 2016).  If things flare up again over there it might be more serious this time.


Monday, June 19, 2017

Daily update 6/19

SPX makes a new high.

The expected bounce took SPX right back to the highs.  It stalled after crossing 2450 early this morning.  Breadth was +60%.  New highs expanded to 219.  New lows dropped considerably to 31, but that is still elevated for a new high in SPX.  Volume was pretty light. 

The futures tested above the upper channel line, but failed to close there.  They have been unable to gather enough momentum to stay above the upper channel since early June.  The last two times they touched the line they pulled back to the lower channel line.  Will it be different this time?

Surprisingly the green count barely moved up today.  It is actually below where it was two days ago.  Not exactly a sign of strength.  

QQQ did not eclipse last weeks high yet.  Volume dropped way off.  This is not clear to me this is any more then just a bounce yet.

COMPX and R2000 have a ways to go to get back to their highs.  This is the first time all year SPX made a new high and COMPX was not already there.  It had clearly been leading the market all year up to 6/9. That is a slight difference which may turn out to be nothing.  On the other hand, it could be a warning sign.  The bulls do not want to see SPX roll over before COMPX makes a new high.  If the tech sellers come back in force in the days ahead they could pull the entire market down.  While they bought tech stocks today I didn't see enough urgency to suggest the worst is over.  A little patience is needed here.


Friday, June 16, 2017

Daily update 6/16

Dip buyers to the rescue.

SPX tagged the 20 SMA again.  Breadth ended at +54% after being negative most of the day.  New highs expanded a bit to 128.  New lows were stable at 72.  The last couple of weeks look a lot like the pattern that started in the end of April.  Every dip gets bought.

The sellers went to work this morning, but failed to do much damage.  After testing below the 50 SMA the futures bounced back.  The last 30 minutes had a considerable rally.  The futures ended the day like yesterday pretty close to where many bars had closed.  They shot up a few more points after hours.  Looks like the bulls might make another attempt at the highs to me.

The green count slipped below 50, but remains well above the red line.  Dropping below 50 like this will usually bring out the bulls if the rally is to continue.

This kind of looks like a bottom doesn't it.  The volume has diminished the last three days.  It has been 5 days since the tech mini crash and QQQ has not closed below that day's low.  If there was going to be more selling at these levels it seems like it should have happened by now. 

While moves in the last 30 minutes are not particularly reliable for future direction I think this time it will be.  It looks like QQQ is set to bounce which should take the entire market higher.  Bears need to see last Friday's low (2415) broken.  Just because I think we bounce on Monday I don't think it is safe to say QQQ will break out to new highs and continue up.  There has been enough dip buyers to absorb the selling this week.  That does not mean that sellers won't return in force if we get back near the highs.  A lot of people were caught with their pants down.  While they were not anxious to sell into price weakness they might be more willing on strength if price returns to the highs.  If we get the bounce it will be interesting to see how strong it is.  That might tell us if there is still risk of continued selling.

I don't know if this photo is real or not.  However, it reminds me of Wall Street firms and individual investors.  You can decide which one is which.

Have a great weekend.


Thursday, June 15, 2017

Daily update 6/15 Yield curve misconceptions

Dip buyers to the rescue.

The market gapped down, but failed to sell off.  Breadth was -60%.  New highs dropped way down to 93.  New lows shot up to 72.  It was a weaker day then the change in SPX would seem to indicate.  Today's low was right at the 20 SMA. 

The futures ended the day right at the 20 SMA again.  There are a lot of price bars that closed right in this area.  The futures have tried to break away from this consolidation twice on the upside and twice on the downside.  Will the third attempt be the one?

The green count turned down slightly, but is still above 50.  The bulls are hanging on.

People were not interested in selling into the gap down opening.  Unfortunately that does not tell us if the sellers will come out again on strength.  The short term trend in SPX turned sideways today.  Other then that the day was inconclusive in my mind. 

I keep reading articles claiming the FED should do something to steepen the yield curve or telling me I should panic because the yield curve is collapsing.  Here is a look at the 10s and 2s yield curve.

This chart includes GDP as well.   The first thing that sticks out is that throughout most of the history on this chart the yield curve was lower then it has been in this recovery  The second thing that stands out is that GDP has been lower in this recovery then before.  Can you see any evidence that a steep yield curve is good for economic growth?  I don't.  I believe I can make a case that it is mostly uncorrelated to GDP unless it dips below zero.  I think it is safe to say that a lower yield curve is not something to worry about until it gets near zero.  It is commonly believed that the yield curve must drop below zero before the U.S. will fall into recession.  While that has been true since WWII it has not always been the case.  We also know that Japan has fallen into recession multiple times without an inverted yield curve since the BOJ went to zero rates.  Therefore, I think it is possible we could see a recession without an inverted yield curve.  If that were to happen it would shock a lot of people and would likely be a big problem for stocks.  I am sure this is counter to just about every economist on Wall Street.  I can't prove that it could happen and they can't prove that it can't.  Quite the dilemma.



The information in this blog is provided for educational purposes only and is not to be construed as investment advice.