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Friday, April 13, 2018

Daily update 4/13 SPX stock correlation

The top of the recent trading range was tested, but resistance won the day.

The market gapped over the top of the resistance box, but started selling off immediately.  The selling was broad based.  SPX dropped below yesterday's low, but dip buyers rushed to the rescue.  Breadth was -57%.  New highs slipped a bit to 45.  New lows increased a bit to 47.  More new lows then highs.  Not a great sign at this point in the rally attempt.

The futures tried to break out over resistance, but failed.  They also dropped below the bottom line, but bounced off the 20 SMA.  They ended up back inside the box.

The red count slightly crossed above the green line.  Does this turn into a bounce cross by bringing out buyers?  The intermediate indicator must cross above 50 to be able to say the correction is probably over.

The internals are not showing a strong bounce, but the rally attempt is still alive.  Will earnings give it some legs?  Some of the selling this week might have been raising money to pay taxes.  That should be pretty much over by now.  Next week is option expiration which usually has a bullish bias.  Earnings could keep some buyers active.  The real question is whether the sellers will still be so eager next week.  Headlines keep buffeting the market around.  Volatility is still the watchword.  No sense trying to predict what will happen.

This is an interesting chart.

Stock correlation is the highest in the last 40 years with the exception of 1987.  The prior instances of very high correlations (1987, 2008, and 2011) all saw bigger down moves then what we have seen so far this year.  The market could be carving out a bottom and the worst might be over, but caution seems warranted.  There may be more down to come.

Have a great weekend.


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