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Tuesday, November 7, 2017

Daily update 11/7

A few sellers just below 2600.

SPX gapped up slightly and ran up to 2597 quickly, but found sellers there.  After falling to 2584 (slightly below yesterday's low) the bulls came in to end the decline.  Thanks to a 5 point rally in the last 30 minutes SPX ended nearly flat.  Breadth was -57%.  New highs were down a bit to 161.  New lows were up considerably to 60.  A strong rally sees new lows consistently under 10.  Since early Oct. new lows have been running higher then 10 and on some days way high.  It is pretty rare for new lows to run this high and the market not pullback some.  I guess we will see what happens.

The futures are down a bit after hours.  They closed outside of the upper channel line this morning, but came right back in.  That usually means a trip to the lower line. 

I recently noted the unusual volatility in IWM.  That continued again today with a new closing low since the high in early Oct.  There are several bars with lower tails as dip buyers came in before the end of the day on the bigger moves down.  Today IWM closed below all those tails so everybody that bought since the high is underwater.  Every other day IWM made a new closing low since the high it rallied the next day.  Another down day tomorrow would break that pattern.  If IWM can close back above those lower tails in the next day or two then today was probably just a stop running exercise before going higher.  More downside would likely be a drag on the other indexes.

XLF was down over 1% today on an increase in volume.  The other indexes are unlikely to go much higher without the financials tagging along.  One to keep an eye on.  Maybe this was just another buying op, but it is a bit odd to drop out of the blue like this.

The high yield ETF HYG may be breaking its 200 DMA.  That MA has been solid support since getting back above it in April 2016.  This ETF crashed back in 2014 and 2015 along with the oil price crash.  A lot of oil companies sold bonds and investors were worried about defaults.  However, plenty of people stepped up to give those companies even more money so nothing bad happened.  With oil prices rallying furiously the last few weeks I have no idea why HYG is attempting to break down below the 200.  Historically the high yield complex has been a canary in the coal mine for economic problems.  It could be a drag on stocks if this is not a false break down.  I think it would be a good idea to keep an eye on this one in case it is giving us some kind of warning.

The transports were also hit pretty hard today.  IYT is already below its 50 DMA.  Another potential early warning sign.

I am not sure what happened today that brought out the sellers.  It is a bit disturbing that IWM, HYG, XLF, and IYT were all down hard.  Those are usually economically sensitive sectors.  I don't know if today was some kind of warning shot or not.  It certainly could be, but we will need to see if there is any follow through.  RRGB was down big on an earnings miss.  They complained about a big drop in revenue per customer.  I think we have seen some other restaurants with similar problems.  It is possible this spooked the market as RRGB is on the higher end of burger joints.  I am quite certain the economy is not nearly as strong as the pundits claim.  However, it is a bit hard to discern exactly what shape it is in with the hurricanes and all.  It is possible it is actually weaker then I think it is.  I just don't know.

The futures are down a little bit more as I write this.  Tomorrow will be interesting.  Will there be follow through selling in the hard hit sectors today or will the dip buyers rush in to get the bargains?  With the unusual volume of late, funny action in NYSE ticks, and overall weak breadth and elevated new lows it is quite possible today was an important signal.  I should also mention bull market top like sentiment we have as well.  Time to pay attention just in case this time is different and the market actually goes down.


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