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Thursday, November 2, 2017

Daily update 11/2

A little wider range today, but at the end not much change.

SPX was fractionally higher at the close.  Breadth was slightly negative and down volume was higher then up volume.  New highs dropped considerably to 155.  New lows shot up to 90.  Way, way elevated again.  Volume was considerably higher then yesterday's above average volume. 

The futures tested the 50 SMA a couple of times and held.  They are attempting to launch as they rallied late in the day.  We will see if they can accomplish that tomorrow. 

The green count picked up significantly and once again crossed the red line.  Will the bulls build on today's positive action or will the bears sell into strength again?

SPX is showing a churning pattern.  Here is the definition from investors.com.

The definition of churning is relatively simple: a day or week of little price progress despite strong volume. It indicates a stock under stress. If it happens with a stock that has made significant advances, it may be smart to sell it.

SPX fits that pattern pretty well doesn't it?  With ultra bullish sentiment this pattern could easily be forming a more significant top then we have seen so far this year (that isn't saying much since we have not even had a 3% pullback).  I looked back all the way to 2000 and the closest pattern I could find was from 2010.

This is the pattern that came before the infamous flash crash.  Similar to now the volume picked up while price did not move very much.  Another flash crash seems unlikely here, but a significant pullback is not out of the question.

This is obviously a very odd time of year to have a pullback.  Nov. is historically one of the strongest months of the year.  It is usually only weak when the market is down for the year and tax loss selling comes into play.  While the indexes are all up, there are quite a few stocks that have been hammered this year.  I don't have any idea whether there could be enough tax loss selling to affect the market though.  I do not know why the market is churning.  I think it would be a good idea to keep an eye on things just in case this is in preparation for some kind of sell off.  With so many people talking about a melt up into year end it would be just like the market to have a sizable pullback to put some fear back into the market.


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