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Wednesday, September 27, 2017

Daily update 9/27 The Illusion of Prosperity

Intraday volatility picking up a bit.

SPX gapped up then sold off fairly hard early on.  Then mid day the market rallied and SPX ran to new highs and came within 2.25 points of my 2514 bull market target.  The sellers returned in the last hour to send SPX back below the prior high close.  Breadth was +54%.  New highs increased considerably to 201.  New lows also increased to 19.  Slightly elevated for a new high.

The futures closed above the 20 SMA, but as of yet have not confirmed an upside break.  Still in consolidation mode.

The green count is still above the red line, but remains below 50.  It is even lower then it was a couple of days ago despite the run to a new high today in SPX.  That is not exactly giving me a lot of confidence in further upside.

Small caps exploded as IWM was up nearly 2%.  That actually makes sense as the proposed tax cuts would benefit the little companies that don't have all the tax attorneys the big boys have.  That big move makes the breadth figure of only +54% seem very odd.  Breadth usually tracks pretty well with IWM as there are a lot of stocks involved in the tracking index.  With that kind of move and indexes all positive I would have expected breadth to be somewhere in the upper 60s.  This could be a breakout of an upward sloping trading range or a climax top.  There is a pretty big run up from the last low at the 200 DMA.  That could make the temptation to take some profits pretty high.  It is really hard to break out and keep going after going straight up to get to the high.  If IWM closes back below today's low it could bring out considerable selling pressure.

Last Wed the FED announced that balance sheet reduction will start in Oct.  Since then the market has developed a pretty consistent intraday pattern.  It sells off in the morning, finds a bottom and rallies mid day, then sells off a bit going into the close.  This is a very odd pattern.  I can't recall having ever seen it on a multi day basis.  It is likely European traders doing the morning selling.  I would guess U.S. retail investors are doing some of the mid day buying.  Some persons/entities unknown are pulling money out of stock mutual funds causing the late day dips.  I don't know if there is any predictive power over the short term of such a pattern.  A nice playbook for day trading though.  Despite the strong break out by IWM I believe the market is still at risk of a pullback here.  Unless the selling in QQQ is over.  It could be, but I have no reason to believe that at this time.  If IWM stays in new high ground and QQQ can join it we would have a different picture.  Stay tuned.

This is a very interesting article.  The Illusion of Prosperity


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