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Friday, March 16, 2018

Daily udpate 3/16

Was it the SPY options that kept the market in a narrow range?

It was one of the lowest daily ranges all year.  Breadth was +63%.  New highs were up a bit to 38.  New lows dropped to 87.  IWM showed relative strength while QQQ was weak.  There was some rotation out of big caps to small caps.  The break out of the triangle pattern was never confirmed.  While the pullback this week was contained above the downtrend line the lack of upside follow through of the break out after four days should be disconcerting for bulls.  Double top lower high patterns tend to break the initial low.  This is a precarious position.  At the Feb. low I expected a retest of that low would be successful.  However, with the way the price action has unfolded since then I don't have that confidence anymore. 

The futures had a narrow overnight range which continued during market hours.  They remain below the 20 SMA.  That is quite a few bars closing in a narrow range.  Rare pattern.  The market is storing up energy for the next big move.

The green count turned up a bit today, but remains below 50.

There was clearly some rotation from big cap to small cap today.  That was probably caused by trade war fears.  If that was the case today might not have been a positive for the market.  The last three closes on SPX were within 3 points.  That is coiling action.  Since volatility has been elevated this year that coil will probably uncoil on Monday one way or the other.  Since the Jan. top the intraday price action has been the opposite of what we have seen the last two years.  After the Feb. 2016 low intraday down moves were sharp and short with a lot V bottoms.  Only days with negative news produced sizable down days.  Strong positive days happened often with no particular news.  Now I am seeing short, sharp rallies with a lot of inverted V tops.  Up days seem to be driven by news.  Down days just happen with no particular news.  The underlying bid of the last two years has turned into an overhang of supply.  I would say some investors are a little jittery.  It could be because of higher volatility, trade war fears, rising rates, or something we have no idea of at the moment.  The path of least resistance was clearly down this week.  Whether that will change next week remains to be seen.  SPX is potentially forming a very bearish pattern.  The bulls need to get going.  There is a lot of talk about serious tariffs specifically on China over intellectual property that may be one source of worry.  I am not sure over what time frame we will know the actual penalties involved.  The market may be uneasy until we know. 

Have a great weekend.


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