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Thursday, November 16, 2017

Daily update 11/16

Global bounce.

SPX has closed above 2590 three times.  Today it hit 2590 and back off a bit.  Breadth was +71%.  New highs expanded a bit to 115.  New lows dropped down considerably to 41.  Volume was slightly less then yesterday.  Not a big deal, but it would have been more comforting to see a volume increase.

At least we got the bounce the futures indicated we should get.  There is still room up to the upper channel line.  What happens if/when we get there is unknown.

The green count picked up nicely with the bounce, but remains below 50.  Still looking indecisive, but we will see what develops.

Both IWM and HYG had nice bounces today, but are below their 200 DMAs.  The VIX was down 10% today, but did not melt down in the same fashion as it usually does on a day like this.  This could mean there is plenty more room for the market to run before the VIX gets "low" again.  On the other hand, there is often a VIX divergence similar to this at important tops.  With all the negative divergences around it is possible it is the latter.  What happens on this retest of the high could very well be dictated by what goes on in the world.  U.S. investors clearly do not want to sell with the promise of tax cuts next year.  That makes perfect sense.  However, foreign investors do not have the same situation.  If global de-risking returns they make take our market down enough to force some people to sell.  I have no idea how to even begin to handicap that scenario.  Maybe the last few days of global selling is all there is and it is off to the races again.  I don't have the data to be able to really analyze foreign markets.  Near as I can tell there are some worries about China again.  From Zhou Xiaochuan, the governor of China’s central bank:
"China’s financial sector is and will be in a period with high risks that are easily triggered. Under  pressure from multiple factors at home and abroad, the risks are multiple, broad, hidden, complex, sudden, contagious, and hazardous. The structural unbalance is salient; law-breaking and disorders are rampant; latent risks are accumulating; [and the financial system’s] vulnerability is obviously increasing. [China] should prevent both the “black swan” events and  the “gray rhino” risks."

If Yellen said something like that the U.S. stock market would probably outright crash.  I wonder how many people in China actually saw those comments though.  I am sure their media is a bit different then ours.  The way China added debt since 2008 I have been expecting a serious problem over there at some point.  The only question in my mind is when.  In Daily update 5/17 Global credit impulse I showed some charts showing the potential for credit problems in China.  The time may be soon.  I can't really say.  It is certainly a risk though.

With this bounce a close back below SPX 2566 again might bring out more sellers then last time.  With SPX just a few points away from the high a test seems likely.  Whether there will be sellers lurking there I cannot say.


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