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Monday, June 12, 2017

Daily update 6/12 Weekly leading index (WLI)

Plenty more volume.

SPX volume was even higher then yesterday.  There were enough dip buyers to absorb most of the selling, but SPX ended up down a bit.  Breadth was just slightly negative.  New highs dropped way down to 125.  New lows also dropped (probably because oil stocks were largely positive).

Over night and today the futures stayed within the wide range bar from Friday afternoon.  They are still below the 20 SMA, but have not confirmed a break yet.

Not much change in the green count today, but the red count increased a good bit. 

There were lots of people defending tech stocks on TV today.  I guess we all better rush out and take advantage of this dip.  Apparently high volume always means a bottom.  I mentioned last night we have never had such high downside relative volume at a high in QQQ.  We have unusually high volume in SPX as well.  I can find lots of instances where high volume down days from highs sees the market going lower in the days ahead.  It is much more rare that the market keeps on chugging higher.  Sometimes it goes a bit higher before rolling over.   It is very common to see SPX touch the 50 DMA.  The QQQ had the highest volume in almost two years (8/24 China induced mini crash low).  The prior time we had higher volume was way back in 4/4/14.  You have to go back to 2011 to get the next instance.  So the volume is unusual and none of those other instances were anywhere near the high.  Just about all I heard today was why I should not worry about yesterday which makes me wonder if maybe we should be worried at least a little bit.  Maybe yesterday and today mean nothing in the grand scheme of things.  On the other hand, we could have just witnessed a tectonic shift in investors appetite for over valued tech stocks.  Even before yesterday I was saying we had so many negative divergences and such complacency that we could be looking at "the" top.  Based on what I heard today the level of complacency is definitely top worthy.  I still think we need to pay close attention to what happens here.  We have not seen any real serious profit taking since the Feb. 2016 low.  That is a long time and there are considerable profits to be had.  Even if this is not "the" top we still could have a sizable correction because of pent up selling demand.  People were afraid to sell for fear of missing out.  Whether that has changed I can't yet say.  All I can say is it might have.  The next several days should tell us more.

Here is the latest chart of the ECRI WLI.

This index turned up sharply in early 2016.  The economy started improving that spring.  I noted several times in the blog how sharply the WLI was increasing, but the real economy was only slowly improving.  Early this year the WLI turned down sharply.  Recent economic data has been soft.  This index indicates the odds the softness will continue for a few more months are pretty high.  The bulls need to see the WLI turn back up.  The new highs in the stock market are predicated on an improving economy.  If that turns out not to be the case there could be a sizable sell off.


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