If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Monday, July 31, 2017

Daily update 7/31 Here’s a sign investors are viewing earnings through rose-tinted glasses

More waiting.  I wonder if the market is waiting for AAPL earnings tomorrow night.

The sellers came out on the gap up this morning.  However, they were only hitting the bids.  No hurry to get out.  Breadth was slightly positive.  New highs were 128 and new lows were 22.  Pretty typical end of month action of late.  Usually the first day of the month undoes whatever happened the last day the previous month.  Small caps and tech were relatively weak today.  Maybe they get a lift tomorrow.

The futures stuck their head above the 20 SMA twice today, but failed to stay there.  However, they never went below Friday's low so there was very little selling pressure. 

The green count slipped a bit more today.  It is just barely above the red line now.  Sometimes that will be enough to bring on some buying. 

Since the end of the one hour selling spree on 7/27 there has been very little selling pressure.  There has also been very little buying pressure.  There are enough dip buyers to hold the market up, but nobody chasing the it higher.  That was probably just month end window dressing.  We could get some fresh money in the new month for a few days.  The VIX remains low so the upside might not be all that significant though.  The lack of progress since turning the trend up means it will be pretty easy to start turning the short and sub intermediate trends down should the market head south from here. 

Good article.  Here’s a sign investors are viewing earnings through rose-tinted glasses


Friday, July 28, 2017

Daily update 7/28 Markets Relax Merrily on a Powerful Time Bomb

More waiting.

The market gapped down a bit, but there was no interest in selling into the weakness.  The breadth was negative most of the day until a buy program kicked in the last 30 minutes.  Breadth ended at +51%. New highs dropped way down to 86 and new lows increased again to 25.

The futures ended the day just below the 20 SMA.  They have not confirmed a break of that MA yet.  The jury is still out on what they want to do next.

The green count slipped a bit more, but remains above the red line. 

QQQ opened below the key 143.90 level.  It made several attempts intraday to get above it, but each attempt was thwarted.  While it closed at 143.84 a few cents is not really enough to say the break out failed.  I think it is fair to say it better get going on the upside Monday.

Seven of the last nine days had down volume higher then the up volume.  All the while the major indexes have hit new highs.  That is a clear sign of distribution going on under the covers.  More evidence of a top forming.  I am becoming more certain we are in for some kind of correction soon.  I am pretty sure the action in the transports is a big warning sign.  Something just doesn't seem right with that.

Yesterday Howard Marks put out some comments on the market.

"Given my view of the environment, the only reason to be aggressive today is because defensive investing implies low prospective returns. But the question is whether pursuing high expected returns through aggressiveness can be counted on to be rewarded," Marks wrote in the investor letter Wednesday. "If the answer is no, as I believe, then this is a time for caution."

He talked about high valuation noting:
1. "The S&P 500 is selling at 25 times trailing-twelve-month earnings, compared to a long-term median of 15."
2. "The Shiller Cyclically Adjusted PE Ratio stands at almost 30 versus a historic median of 16. This multiple was exceeded only in 1929 and 2000 – both clearly bubbles."
3. "The 'Buffett Yardstick' – total US stock market capitalization as a percentage of GDP … hit a new all-time high last month of around 145, as opposed to a 1970-95 norm of about 60 and a 1995-2017 median of about 100."

Maybe those comments sparked the sell program that hit tech land yesterday.  The more interesting thing to me was comments by Josh Brown on CNBC today.  He really chastised Mr. Marks for daring to even thing about being cautious.  He went on a rather long tirade about it.  Mr. Marks' firm Oaktree Capital has $99 billion of assets under management as of June 2017, according to its website.  I am sure he did not get to where he is by being stupid.  I see headlines that he warned about the Dot com bubble and the financial crisis.  Josh Brown on the other hand is a financial advisor.  Who should we listen to?  This is another case of the bulls hammering anybody that is not wildly bullish like they are. I have commented in the blog in the last few months about seeing this type of behavior.  I can't remember seeing this much of it since 2000.  This is clearly a time to be cautious.

I have talked about the large amount of margin debt and how it is a loaded gun and we have no idea when the trigger will be pulled.  That is just the on the books margin debt.  This article indicates there is a large but unknown amount of off the books margin debt.  Markets Relax Merrily on a Powerful Time Bomb  Just think our illustrious FED is condoning this bad behavior.

Have a great weekend.


Thursday, July 27, 2017

Daily update 7/27

Interesting day.

Last night I wrote:
"SPX is starting to look like a slow creep up pattern may be starting.  That pattern often reverses sharply, but can continue on for days before the reversal happens."

SPX reversed sharply for about an hour mid day.  The selling suddenly stopped and the dip buyers rushed in preventing a "key reversal day" by about .5 points.  Key reversal days don't always reverse and are often not key at all.  However, sometimes they are.  Volume increased considerably today.  We have to call it another distribution day.  That makes three in a row.  Breadth was -53%.  New highs were stable at 160.  New lows picked up to 22.  Just when they got back down to where they should be they picked up again.

The futures penetrated the lower channel and bounced.  They closed back above the 20 SMA, but are sitting right on it as I write this.  The consolidation phase continues.  Will it be just that or turn into a top?

The green count fell well below 50, but remained above the red line.  It would not take much to change that now.  The intermediate indicator is important to watch.  If it drops below 50 the odds of a bigger correction go up considerably.

While SPX was creeping up buying pressure has been falling on the short and intermediate time frames.  At these levels it would be easy to get negative crossovers on all of them.

QQQ had a key reversal day on very high volume.  Not quite as high as the 6/9 key reversal day.  Interestingly it closed above the key 143.90 level after being well below it intraday.  Two key reversals a month or so apart is something that needs to be watched closely.  This could be forming a double top (slightly higher high).  Tonight AMZN, the last of the FANG stocks to report, was down after hours on its earnings.  I have a theory that people bought the last dip because great earnings were expected out of these stocks.  If AMZN is still down tomorrow it will be 50/50 on FANG stocks being positive the day of earnings.  Now that the results are in I wonder if there might be more willing sellers this time. 

The most interesting chart today was IYT.

I have no idea what hit the transports.  They started down right from the open and just kept falling all day.  IYT closed back below its 2014 high.  It has made several attempts to break out above that high, but just can't seem to stay there.  Why is that?  It is possible this action is what ended up causing the selling in FANG.  I don't really know.  What I do know is that this could be a warning sign for the broad market.  It may find support around the 200 MA, but if it doesn't there could be something in the wind.

Q3 is when most of the important tops happen.  Oct. and Nov. are when most of the important bottoms happen.  While today could mean nothing it could also be the start of a serious correction.  Internals have been weakening for a while.  The McClellan summation index remains negative.   The advance/decline line making new highs argues against anything truly bad happening.  I am not sure we can hang our hat on that this time.  Low cash levels and ultra bullish sentiment suggest a bigger correction is possible.  Add to that high margin debt and the FED talking about starting QT and things could get worse then expected.  It is impossible to know.  If we get to the point where margin calls start coming in then liquidity could vanish.  Time to pay very close attention especially on long term index positions.

Tomorrow is probably going to be very important.  Will the sellers show up again?  The weak technical position leads me to believe downside follow through from here is likely to give us a bigger pullback then what we have seen this year (2.8%, can we even call that a pullback?).  That is not exactly saying much is it?  Just keep in mind things could morph into a large pullback.  It is also possible this is the top for this bull market.  No divergence in the advance/decline line is really the only thing that is inconsistent with a bull market top.  Is that enough?


Wednesday, July 26, 2017

Daily update 7/26 The Greater Moderation

More nothing even with a FED announcement.

Another tiny range day that managed a slight new high close.  Breadth was dead even.  New highs dropped way down to 164.  New lows dropped again to 11.  At least the lows are getting back down where they should be.  The volume has been high the last two days.  The down volume today was about 50% higher then the up volume.  High volume and little price movement is suppose to be indicative of accumulation (at lows) and distribution (at highs).  Today increased the toppy look of the chart.

The futures remained in the channel today, but are still above the 20 SMA.  They have not had enough selling pressure to even poke through the MA yet.

The green count crept up again, but at new highs is not particularly strong.

SPX is starting to look like a slow creep up pattern may be starting.  That pattern often reverses sharply, but can continue on for days before the reversal happens.  We could easily have several more days of this.  The bulls have not been very anxious to buy with the VIX this low.  However, nobody has started selling yet. 

The FED had an interesting sentence in today's statement.

"The committee expects to begin implementing its balance sheet normalization program relatively soon," said the Fed statement.

Anybody care to define relatively soon?  Is that the next meeting, or maybe the one after that?  The stock market did not react much, but the Euro went flying up sending the dollar index lower again.  Clearly the currency markets were looking at the FED statement today as dovish.  The dollar has been falling all year against most all currencies.  This is one of the biggest and fastest moves down for the dollar index in the last 20 years.  Clearly the FED is expecting to start quantitative tightening while the ECB has made no sign it has any plans to do that yet.  In that scenario does it make sense for the dollar to keep falling?  Just saying.  At the beginning of the year the long dollar trade was extremely crowded.  I am sure that bullish sentiment problem has been taken care of.  I am sure the ECB cannot be happy with that rising Euro.  I would not be surprised to hear Draghi give a good dovish speech to try to talk it back down.  That might provide a catalyst for a reversal.  The falling dollar has definitely helped U.S. corporate revenues.  However, it is now approaching the bottom of its long trading range.  We do not seem to have the fundamental case for a massive break down.

This is a good read from a former FED insider.  The Greater Moderation


Tuesday, July 25, 2017

Daily update 7/25

Typical pre FED day gap up.

A new high close.  Breadth was +59%.  New highs increased to 223.  New lows dropped back to 14.  That is kind of an odd looking chart.  Four narrow range bars in a row.  Similar patterns have been indicative of short term tops in the past.

Despite the move up the futures are still inside the channel.  We are still in consolidation mode.

The green count picked up a little bit today, but not much.

The sell off in GOOG kept QQQ in the red all day.  There was also some selling in the SOX, but it recovered most of its losses by the close.  The bulls have not shown up to push QQQ significantly higher yet.  It is still in jeopardy of failing its break out.  SPX is starting to look like a potential short term top forming.  That is certainly understandable as the VIX got down to 9.04 intraday.  Buying here seems like ultra high risk.  We will have to see if any sellers show up though since they have been missing in action the last few weeks.

I guess I must be in a hurry to get the FED meeting out of the way.  Last night I mentioned it was today.  I woke up in the middle of night wondering why I thought today was Wed.  So lets try this again.  The FED meeting is tomorrow.  Those meetings have not brought out much volatility recently, but I guess there is always chance something happens.  


Monday, July 24, 2017

Daily update 7/24 Don’t Buy the Numbers Game Hype

Another sleepy summer day.

SPX had a whopping 7 point intraday range.  Breadth was -54%.  New highs dropped to 149.  New lows increased to 23.  Getting in the elevated range again with SPX this close to the highs.  The buying was concentrated in tech (except SOX) and financials. 

The futures continued the consolidation that started Friday morning.  So far they are holding above the 20 SMA.  No selling pressure yet.

The green count slipped a bit more today, but remains above 50.

SPX is pausing due to a lack of buyers at the moment.  There has been no selling pressure to speak of.  Tomorrow is FED day and no action is expected.  Maybe that event will spark a little more buying.  The low VIX could be holding buyers back.  On CNBC today they were talking about the lack of upside in stocks after announcing beats while companies that miss were getting hit hard. While NFLX has done well after earnings there are not many other big names doing that.  GOOG is down after earnings tonight.  The Dow has been held back several days by stocks in that index down on earnings.  The good earnings we are seeing have apparently been priced in already.  That sounds like a tired market to me.

Interesting thoughts on the low volatility theory.  It is an odd title based on what the article is about.  Don’t Buy the Numbers Game Hype

My question is simply this.  What happens when all these trend following algorithms and robo advisers start selling?  I don't know when it will happen, but I am quite certain someday it will.  I do not believe that recessions have been permanently eliminated. 


Friday, July 21, 2017

Daily update 7/21

Expiration week ends with a whimper.

The market opened down a little and sold off a little more before the dip buyers came to the rescue. However, the buyers never pushed SPX into the green.  Breadth was -51%.  New highs dropped considerably to 171.  New lows picked up again to 15.  They don't seem to want to stay below 10 where they should be. 

The futures closed back inside the channel early this morning signaling the beginning of a consolidation phase.

The green count slipped a bit more today, but remains well above 50.

The tech bulls are working hard to keep QQQ above the break level.  QQQ opened below 143.90 and sold off enough to get into the 7/19 gap up.  There the dip buyers came in to save the day.  QQQ tested a bit below 143.90 in the afternoon, but found plenty of support.  If it keeps testing below the break out it will eventually fail.  The bulls need to put together another push up to get free and clear of the prior high.  With the VIX this low and it being July I don't know if that will happen.  A failed break out could open the door for another bout of selling.

I am not sure exactly how it works, but this is amazingly accurate. Read the full description before looking at the picture.

The picture below has 2 identical dolphins in it. It was used in a case study on stress levels at St. Mary's Hospital.  Look at both dolphins jumping out of the water.  The dolphins are identical.  A closely monitored, scientific study revealed that, in spite of the fact that the dolphins are identical, a person under stress would find differences in the two dolphins. The more differences a person finds between the dolphins, the more stress that person is experiencing.  Look at the photograph and if you find more than one or two differences you may want to take a vacation. 

Have a great weekend.


Thursday, July 20, 2017

Daily update 7/20

Mixed day.

SPX has a hanging man bar on an increase in volume.  The higher volume indicates there were some sellers out there.  While there was enough break out buyers to absorb  the selling today we will have to see if it stays that way in the days ahead.  The breadth was just slightly neg.  New highs slipped a bit to 216, but were still strong.  New lows dropped down to 8.  That is where they should be. 

The futures remained above the upper channel, but are pausing. 

The green count slipped a bit today, but remains well above 50.

QQQ closed up a bit, but below yesterday's high.  The key number is 143.90 which was the prior intraday high.  It actually dropped below that level twice today, but the bulls rushed in to save the day both times.  It is a positive the bulls came to the rescue, but the fact there was enough selling to knock it down twice is not particularly good.  July break outs do not have a very good track record to begin with.  The bulls are in control at the moment, but the VIX remains very low.  I am still not entirely convinced the buyers will just keep showing up.

Rant on:
I am about out of my mind as I hear clips from various members of our illustrious government and key central bankers.  What the &*(& is going on.  Yellen and Draghi are hawkish one day and dovish the next.  Don't even get me started on what is going on in D.C on both sides of the isle and the media.  I can't believe this is the United States of America.  You can't trust the polls and you can't trust the media.  I hear so many lies and half truths it is truly shocking.  I am reminded of the infamous European politician saying "When it becomes serious, you have to lie,".  Thank you Mr. Juncker for telling us the truth about how politicians think.  Judging by the lying going on things must indeed be very serious.
Rant off:


Wednesday, July 19, 2017

Daily update 7/19 Elliot wave 5 up near an end?

Low VIX be damned, full speed ahead.

SPX extended the rally.  Breadth was +70%.  New highs expanded to 239.  Much better then yesterday, but still below where we were months ago.  New lows dipped a bit to 19.  That is still a bit elevated for new highs.

Once again the futures stayed outside the channel overnight allowing the rally to extend. 

The market is getting into the overbought area now.  A pause would not be surprising soon.

The bull pressure lines are showing a good bit of buying on this move up.  Thanks go to Yellen for inspiring buyers. 

I know just a little bit about Elliot wave theory.  Just looking at the SPX monthly chart I noticed the standard 5 wave pattern may be forming.  Here is a marked up chart.

As I understand the theory it is common for wave 5 to be about equal to wave 1.  That gives us a target of 2514 for the end of wave 5.  SPX is only 40 points away at this point so the target is certainly doable.  The sentiment picture lines up with a wave 5.  We even had FANG week on CNBC.

The market gapped up a bit this morning and was milling around until comments from Ryan that congress would take up work on taxes after the Aug. recess sparked the buyers.  There was no selling pressure today as even intraday dips were miniscule.  QQQ closed .08 above its prior intraday high.  That makes my theory that QQQ would not make a new high wrong.  Thank you very much Janet!  IWM played along, but XLF was barely green and IYT ended up red.  I don't have any idea what happens now.  Since QQQ made just a marginal new high it is still possible sellers show up.  You know how those straight line moves sometimes reverse sharply.  If no sellers show up the market should continue the slowly grind higher.


Tuesday, July 18, 2017

Daily update 7/18 Max intra year drawdowns

Dip buyers came out to buy the little dip early in the day.

Rally chasers did not show up so no forward progress was made.  Breadth was slightly negative.  New highs dropped a good bit to 116.  New lows increased again to 22.  That is not a particularly good sign.  New highs in July always seem to struggle and usually the market ends up falling back.

The futures dipped inside the channel this morning, but the dip buyers pushed it back out.  The bulls will have to push price higher tomorrow or we are likely to end up back in the channel.

The green count slipped a bit more today, but is comfortably above 50. 

The bulls are still buying dips.  However, they still have not answered the question whether they are willing to push price with the VIX below 10.  During the tech sell off IWM, XLF, and IYT seemed to be catching the money.  During this tech rally IWM, XLF, and IYT have been lagging behind.  Reverse rotation.  That does not seem thought out very well.  Is the market saying oops I made a mistake?  This seems like indecision by the market.  QQQ has nearly made it back to its high and so far no sign of sellers.  However, now that QQQ is back near the high it is decision time.  Will buyers keep on coming to push it higher or will profit takers show up?  In the short term market internals are all positive.  I think the bull case would be stronger if IWM, XLF, and IYT were going up at the same time as QQQ.  This is money moving around the market rather then fresh money coming in.  It takes fresh money to push it higher.

This is an interesting piece of historical data.

So far we have the second lowest drawdown ever.  However, the year is not over yet and the FED is getting ready to start shrinking the balance sheet. 


Monday, July 17, 2017

Daily update 7/17 Institutional investors low on cash

No follow through today.

Another very narrow range day on light volume.  Breadth was +52%.  New highs came in at 151.  Once again light at new highs.  New lows picked up a bit to 14.  They are normally under 10 when in rally mode at new highs.  The bulls were not tripping over themselves to buy the break out today.

The futures are still holding outside the upper channel line.

The green count slipped slightly today. 

The bulls were not willing to buy today with the VIX in the 9s.  Not surprising by any means.  The real question is whether selling pressure picks up or not.  Market internals are all positive at the moment.  In the absence of sellers the market could continue higher in a slow choppy fashion.  This last new high looks pretty flimsy to me, but the rally could still get some legs.  I think the clue on whether the sellers have more work to do will be in FANG stocks which would be reflected in QQQ. 

Take a look at this chart.

The red circles indicate prior periods when cash levels dropped to 3%.  Notice the dates and you will find corrective periods periods in SPX.  The flash crash followed the April 2010 reading.  The near 20% mini crash followed the July 2011 reading.  The June 2015 period happened right after the May high in SPX that lasted over a year.  Not to mention the rather abrupt move down in Aug. that year.  We are currently at the lowest cash level in this entire bull market.  The market appears to be running low on fuel.


Friday, July 14, 2017

Daily update 7/14 Will Corporate Bonds Cross Over?

Finally.  In Daily update 7/3 I wrote:

"Last week there were some very short term positive divergences that made me think we would see a bounce that would take SPX to a new high while QQQ fell short.  SPX started to bounce, but QQQ did not play along.  That scenario could still play.  It would be even more likely that QQQ fails to make a new high now.  However, I think QQQ has to rally at least some to allow SPX to make the climb.  I don't have any idea if that will happen or not.  If QQQ continues down from here I think it will be pretty hard for SPX to make any real upside progress. "

QQQ finally rallied and SPX finally made a new high.  It remains to be seen whether QQQ fails to make a new high or not.

The first thing to point out is the volume.  Maybe I should say lack of volume.  Breadth was +67%.  New highs were only 172.  That is less then the other day and way less the 331 on 6/2.  Today looks more like a top then a break out.  The market needs break out players to show up to keep going.  It looks like they were mostly sitting on their hands today.

The futures stayed above the upper channel line overnight which allowed the bulls to pump up prices some more today.  When I say pump up I mean that literally.  I watched a series of 1 minute high volume bars push price higher through the morning.  Push and pause.  Push and pause.  For most of the day price went sideways until the next push.  It was clear it was a deliberate attempt to get SPX to a new high by person or persons unknown.  The lack of volume shows very few investors were interested in buying that new high.  There was clearly a lack of sellers until the last 30 minutes as the market sold off a bit going into the close.

The green count finally popped over 50.  It is below overbought levels so there is more room to go should the bulls decide to push it.   There is a pretty good divergence in the intermediate indicator since mid June.  Lets look at the weekly version.

The weekly green count is below 50.  A  noticeable divergence from back in June.  An even bigger divergence from early in the year.  Same thing for the intermediate indicator. 

Last quarter I noted that there were only two historical significant tops in Q2.  That made me think that any pullback would be bought for a trip back to the highs.  Now that we made that new high and it is Q3 we have a much different situation.  Q3 is littered with all kinds of significant tops.  The middle of July to the middle of Sept. is the most likely time of the year for a top.  I think Aug. has the most tops,  I would love to see the study results for a system that exits stocks on the last day of July and gets back in the fist trading day of Nov.  I think it might perform better then the famed sell in May and go away.  The last week of Oct. might even make a better entry, but I digress.  We have some short term negative divergences and today's break out looks questionable to say the least.  So we could be making a short term top right around here.  We still have that pesky McClellan oscillator that just won't turn positive.  It could be portending a much more serious top to come.  So now we have the problem that a short term top here could turn out to be a much more serious then what most people would believe.  But then again a short term top here might lead to just another garden variety pullback that gives yet another buying op.  I have a serious dilemma here.  I have questions about the economy because some data is ok and some data suggests caution.  The technical condition of the market is similar.  The advance/decline line is making new highs suggesting nothing bad should happen and any sell off should be bought.  Then there is that McClellan summation index problem and the cumulative volume indicator that has been diverging since Feb.  Is the market just fine or does the market have a problem?  I sure wish I knew. 

Individual stock positions take care of themselves with stops.  My concern is for long term index/sector positions.  There is no law that says you must be invested 100% all the time.  Cash can be easily raised in non taxable accounts.  I think it would be a good idea to keep a close eye out the rest of the summer to see how things develop.  I keep getting this feeling I should be worried.  My brain does that sometimes.  More often then not it is correct.  Just like the market though, it isn't 100%. 

Next week we will find out if people are willing to buy with the VIX below 10.  It is possible we just chop higher in a slow grind.  It really is going to depend on whether investors have a desire to sell or not.  I don't know the answer to that.

Another good read (tnx db) on QT.  Will Corporate Bonds Cross Over?

If any of you are looking for a good buy on Fla. real estate you might want to check this one out.  It is listed as a one bedroom high rise apartment with a great view from every window.

Only in Fla.  Have a great weekend.


Thursday, July 13, 2017

Daily update 7/13

Slight bit of follow through, but...

SPX fell just short of 2450 and 4 points short of a new high.  This is the second time it has closed above the FED rate hike resistance line.  Last time it turned right back down the next day.  Breadth was slightly positive.  New highs actually decreased to 120.  Not a particularly good sign.  New lows dropped again to 11.  At least they are not elevated at the moment.

The futures stayed outside the channel continuing yesterday's rally.  Closing back in the channel should indicate this thrust is over.

At least the green count increased today.  However, it remains below 50.  Still non committal and SPX is just a few points from a new high.

I heard somebody mention on TV today that when the VIX gets below 10 it tends to pop.  Traders are starting to go long volatility when that happens.  I have talked about that a number of times in the blog, but this is the first time I have seen any mention of that anywhere else.  It will now become common knowledge which will either make it stop happening or a self fulfilling event.  Since the history of the VIX shows it has never been able to stay below 10 very long it seems unlikely to stop working.  It might stop getting below 10 though.  Time will tell. 

The VIX closed at 9.9.  Several big banks report earning tomorrow.  They are expected to be very good.  That could cause a gap up to new highs.  It seems unlikely to stay there though.  If we gap down it would not be a surprise to see it keep going down. 

I think earnings comparisons get a bit tougher in Q3 and Q4 especially if oil stays in the mid 40s.  I am still not exactly sure what is going on with the economy.  It is clearly not as strong as the pundits claim.  Auto sales and retail sales in general have not been good.  There seems to be some weakness developing in the housing market.  Delinquencies are rising in most loan categories.  However, I have not seen any sign the economy is rolling over yet.  Just keep in mind caution signs are plentiful and softening in the economy going forward is not out of the question.



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