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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.


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