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Tuesday, April 24, 2018

Daily update 4/24 SPY option data

Houston we have a problem.

The market gapped up on what was perceived as good earnings.  However, the sellers emerged and did they ever sell.  Once the support I mentioned last night at 2660 was broken the flood gates were opened.  Breadth went from +68% at 9:50 to end at -63%.  Volume was heavy.  It was even heavier then option expiration on Friday.  Notice SPX fell all the way through the bottom of the resistance box that we broke above on 4/16.  Prior resistance could have become support, but it didn't.  Now that SPX is below it the odds of the rally restarting seem low to me.  I think it more likely we test the March low.

I mentioned last night the pattern usually leads to a test above the 20 SMA.  In the night the futures came within .5 points of the 20 before turning around.  While they were up at the open they were well off the overnight high. 

The red count crossed the green line and ended above 50.  The intermediate indicator turned down while below 50.  That often indicates the prior low will be broken.

The SPY option data shows a lot of puts at the 260 and 255 strikes.  That 260 strike could be strong support.  If SPY gets down below 259.5 or so it could really accelerate down as delta hedging kicks in.  I don't think there are enough calls at any strike to provide resistance or acceleration levels.  Maybe as the month progresses that will change.

Some people were blaming the 10 year rate hitting 3% early in the day (it did not stay there long).  Some people were laying some blame on the CAT conference call where they mentioned that Q1 might be as good as it was going to get this year.  I don't have a clue.  It is obvious there was a rush to the exit though.  I think the Feb. and March lows are in jeopardy of breaking.  The McClellan oscillator has three peaks that were strong enough in a bull market to have ended the correction.  Instead of indicating initiation of a new leg up the market sold off hard after each peak.  That rarely happens in a bull market.  The advance/decline line made a new high.  Earnings are coming in great.  The economy seems to be chugging along.  So why isn't the market rallying back to test the high?  The market is clearly worried about something(s).  It could be a slowing global economy, rising rates, trade wars or something else entirely.  At the moment those worries seem to be stronger then the positives.  Are those worries real or just something that will be short lived?  The stock market tends to top when things are as good as they are going to get.  Maybe we have hit that point, but I don't see any way to know that.  The global economy is slowing.  China loosened reserve requirements recently so even their economy is slowing.  It is possible the worries are well founded.  I am not smart enough to know. However, I can see some technical things like the action in the SOX and my intermediate indicator that are worrisome.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.