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Thursday, April 5, 2018

Daily update 4/5 STA Weekly Report – Q1 2018


SPX opened in the resistance box and stayed there all day.  Breadth was +68%.  New highs increased to 50.  New lows slipped to 23.  It was a seesaw market with bouts of selling and periods of buying.  Volume declined a bit.  We have arrived at the top of the recent range.  Will the bulls power through or choke again?  I have seen these volatile sideways patterns before and they usually occur in a bear market.  The function is to work off an oversold condition in a consolidation pattern that ends up breaking to new lows.  The bulls need to prove they mean business.

The futures confirmed a break of the 20 SMA.  They ran into resistance at the top of the channel.  A pullback to test the 20 SMA is possible.  Falling back through the 20 could bring out some real selling again.

The green count crossed positively today.  Sometimes that will bring out sellers just like a negative cross will often bring out buyers.  I don't think I made this clear before when I talked about the intermediate indicator making a new low on this retest of the Feb. bottom.  This is the first time it has done that since the bull began in 2009.  Every one of the bigger corrections that did a retest did it with a positive divergence.  This is a good reason to be more cautious this time.  This retest may end up failing.

I heard Jack Bogle on CNBC today say "I have never seen a market this volatile to this extent in my career. Now that’s only 66 years, so I shouldn’t make too much about it, but you’re right: I’ve seen two 50-percent declines, I’ve seen a 25-percent decline in one day and I’ve never seen anything like this before." 

I would point out the FED has never reduced its balance sheet like this before.  People should not forget the FED was pulling $20 billion a month out of the system in Q1.  They will be doing $30 billion a month this quarter.  Does that have anything to do with it?  No way to know for sure.  Maybe it is just a coincidence.  I think it is a contributing factor at least.  Financial conditions are also tightening as credit spreads are widening out some.  This seems like a recipe to keep volatility higher then we have seen in recent years.

What happens now?  I don't have a clue.  The market put in a nice bounce, but has not done enough to suggest we have put in a bottom.  Tomorrow is employment report day.  The other two reports this year sent the market on multi day moves.  The Jan. report caused the mini crash while the Feb. report caused a rally that formed the double top peak.  It is not out of the question tomorrows report also moves the market for a few days.  The market has worked off the oversold condition without getting itself back into an uptrend.  In a normal bull market a consolidation like this that made a bottom would have lower volatility.  This may still be a bottom, but the bulls need to prove themselves.  This market could still tip over.  A close by SPX over 2675 would be a positive sign.

There is some interesting stuff in this one.  STA Weekly Report – Q1 2018


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