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Thursday, July 6, 2017

Daily update 7/6

Selling everything.

SPX closed below the 50 SMA joining COMPX.  R2000 closed just a bit above its 50.  Breadth was -78%.  Most negative breadth since mid Dec.  New highs dropped down to 35.  New lows increased to 45.  More new lows then highs already.

The futures got a confirmed break of the 100 MA.  They are at the lower channel line.  Will they bounce or break out the bottom of the channel?

The red count crossed 50 today, but remains well below oversold.

All bull pressure lines crossed negative today.  What a difference one day can make.

QQQ closed above the support line again despite being a down day.  It is trying to hold on.  Will it be successful or not?

Stocks, bonds, and gold were all down today.  There was no flight to safety which should have been the case if geopolitics were the reason for the sell off.  If that wasn't it, what was it?  The TRIN was not particularly high (1.5) and the VIX while up did not go crazy up.  No sign of panic selling in stocks.  This does not look like a technical condition that would make a short term bottom.  The bulls will need to show up just because SPX closed below the 50.  Will that be enough?

I don't have any idea if this is something serious starting or just another pullback.  That QQQ chart combined with FANG week on CNBC suggests the possibility of a serious top in tech stocks.  I think it unlikely the rest of the market could hold up in that case.  The other thing to watch is bonds.  There has been a global sell off in bonds ever since Draghi said deflation has been beaten.  How long will that last?  The problem is risk parity funds (leveraged stock and bonds).  Bonds are supposed to hedge a downturn in stocks and vice versa.  If they both go down together long enough it would cause margin calls.  I don't really know what the odds of that are.  We do know the FED is talking seriously about reducing its balance sheet.  If the market thinks that the ECB will start to taper purchases all hell could break loose.  I think there is still something like $12 trillion of bonds trading with negative rates.  People did not buy those bonds to hold to maturity.  They only bought them because they were going up and they knew the ECB was buying.  If those holders get spooked more global bond selling would be likely.  But how do we have any idea when/if that comes to pass.  Time to pay attention here just in case.


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