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Thursday, August 10, 2017

Daily update 8/10

There is some range expansion.

SPX closed below the 50 SMA.  That line has been holding as support all year.  We will have to see if the dip buyers come out tomorrow.  Breadth was -84%.  That is the most negative breadth has been since Oct. last year.  The VIX ended over 16 which was the highest close of the year.  New highs dropped way down to 38 while new lows stepped higher at 115.

The futures stopped at the 200 SMA and are holding that at the moment.  This is a good place to bounce from.  The -DI line got above 35 so the door to a bigger sell off has been opened.  However, it has been opened before and the bears failed to step through it.  It could be different this time with all the negative divergences we had at the highs, but we will have to see how the bulls respond.

The red count shot up and has almost reached oversold levels.  If the intermediate indicator ends up dropping below 50 that door to a bigger decline will be opened wider.

This is the fourth time this year the VIX has popped above 15.  Upon closing back below 15 the intraday low (one time there was a slightly lower close) was put in.  If the pattern repeats the market should put in a low in this vicinity and run back to new highs.  Otherwise it means things are different this time.  The market has as a slightly short term oversold condition and the futures are in a good place to bounce.  This is very similar to 5/17.  The futures gapped down the next morning, but rallied right from the open.  Today's close was very near the low so a gap up tomorrow (unless it is really big) would be likely to retest today's low.  A successful test of the low should lead to a bounce.  The bearish scenarios are a gap down that keeps going or a gap up the breaks today's low and keeps going.  Either of those two scenarios would be different then what we have seen this year.  The bounce scenario seems like the higher odds outcome.  With option expiration next week a new high in SPX is not out of the question.  A juicier setup for the bears would be a slight new high in SPX with a bigger negative divergence in the advance/decline line.  It is looking like things are heating up for a bigger fall correction.  The bulls could always spoil the potential bear party if they show up in force and show lots of buying volume.


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