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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?


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