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Wednesday, March 28, 2018

Daily update 3/28


Both the bulls and bears showed up today.  The bears started selling a small gap up and sent SPX slightly below yesterday's low.  The bulls showed up there and generated a sizable bounce.  However, the bears showed up to sell the strength.  The afternoon saw rallies getting sold and dips being bought.  Breadth was slightly negative.  New highs were 21.  New lows slipped some more down to 105.  Volume was elevated once again.  The SOX was down over 2% and COMPX was down .85% as rotation out of tech continued.  Small caps and financials collected some of that money. 

The futures are hanging around the lower channel line.  They did not implode when they tested yesterday's low.  That is a positive, but at some point the bulls are going to have to show they can hang on to a rally if this market is going to bounce significantly.

The red count remains at oversold levels.

I don't know whether we are going to bounce or break here.  Either way is likely to be a sizable move.  When a market gets this oversold, consolidates and breaks down bad things usually happen.  I suspect the Feb. intraday low would end up getting broken.  On the other hand, the market is oversold right on the 200 DMA.  Should a rally break out it should be significant.  Usually SPX gets back to the 50 DMA at least.

The advance/decline line is looking much stronger then SPX.  A lot of people might be looking at that as a positive.  I remember seeing a similar phenomenon back in late 2000 as the tech bubble was bursting.  The money coming out of the extremely overvalued big cap tech stocks was moving around to other areas of the market.  That made the breadth data look better then the major indexes.  The problem was the big cap stocks kept taking the indexes down.  They eventually just broke.  The breadth data was actually quite misleading.  We might be in a similar situation here as FANG stocks are clearly seeing significant profit taking.  The question is does it last long enough to break the entire market.  I don't have any idea how to quantify the odds.  I just know it is currently a risk. 


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