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Tuesday, October 17, 2017

Daily update 10/17 Confidence is high in a rising stock market.

The Dow reached 23000 today and SPX closed at yet another new high by a 1.72 points.  Wow.  Hard to believe it could gain that much in one single day.

Despite new highs in COMPX, SPX and the Dow, R2000 closed down (turning its short term trend down).  Breadth was -55%.  Not good at all.  New highs dropped way down to 134.  New lows remain elevated at 28.

The futures remain between the 20 SMA and the upper channel line.  This is a bit odd to go this long without penetrating the 20 SMA on the downside at least a little.

Despite the new high the green count slipped a bit more.

The 10 DMA breadth lines (2nd panel) are almost on top of each other.  Another down day would give them a negative cross.  The McClellan oscillator is already negative.  The internals continue to weaken.

Two days in a row SPX closed at new highs on negative breadth.  Today being considerably more negative then yesterday.  That is a rare thing to do.  I don't remember the last time it happened off the top of my head.  The market has gotten extremely tired now.  In this condition the bulls need another upside thrust bar to keep the rally going in the next day or so.  Otherwise we are highly likely to start a pullback. 

As far as I can tell  nearly everybody has given up on an Oct. pullback and I have not seen anything about year 7 in a while either.  The talk now seems to be about a market melt up from here.  I believe the market has been melting up since Feb. 2016.  While a further melt up from here is certainly possible I wonder if it is likely with so many people expecting it.  As the sentiment chart below shows that survey has never had more people bullish over the next 12 months.  It is pretty rare the market does what everybody expects.  With the weak technical condition and bears waving the white flag a pullback rather then another upside thrust seems like the higher odds thing to happen.  If we do get a pullback it is hard to say what to expect.  The market likes to fool the most people it can whenever it gets the chance.  From that standpoint what better time for a bull market to end then when most people are expecting a melt up?  I keep hearing every day on TV how there is nothing out there (except possibly a problem with NK) that could derail the market.  This reminds me of Bob Farrell's rule number 9. 

"When all the experts and forecasts agree — something else is going to happen"

Experts and forecasts all seem to agree at the moment.  I don't think this is the time to be complacent about the market.  If it starts down soon pay attention.  Maybe we get yet another buying op, but it could be more serious then that.  If we get another upside thrust then the bulls should be good for a while yet.

Interesting chart from the Michigan consumer sentiment data.

Confidence stocks will continue up over the next 12 months is the highest in the last 15 years.  The last two times it was this high we had a bear market (2007) and a top that lasted over a year (2015).  The tiny intraday ranges suggest a top is close in time.  Sentiment suggests it could be a significant top.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.