Daily update 5/31

Tariffs are on again (at least for the moment).

SPX closed back below the 20 and 100 SMAs again.  Breadth was -63%.  New highs contracted to 95.  New lows increased to 67.  I think investors were discerning between winners and losers on the tariffs rather then selling everything.  It still put a damper on things.

The futures tested yesterday's low and bounced back.  That would be generally bullish in an uptrend, but does not work as good in a consolidation.  The bulls definitely need to do some work tomorrow.  Further downside would probably kill the current bounce.

The red count increased a bit, but remains below 50.  The intermediate indicator appears to be rolling over.  That is not particularly good.

The daily chart is starting to look like a slow roll over top.  Despite small caps doing well the big cap stocks are languishing.  Normal bull market corrections tend to have the indexes topping in close proximity to each other.  In this case SPX topped in Jan., COMPX in March, and maybe R2000 here in May.  The indexes topped at different times in 2015 and it was a year before SPX made a new high.  This is really starting to look like another prolonged correction or bear market starting.  Something sure seems to be bothering the market.

Bob

Daily update 5/30

I guess the VIX spike really brought out the buyers.

The market gapped up and kept on going.  SPX closed back above the 100 SMA.  Breadth was +76%.  New highs spiked up to 151.  New lows dropped back to 37.

The futures rallied back above all the moving averages.  It seemed to find resistance at the top red line. 

SPX closed above where it was the day before yesterday's sell off, but the green count is still just below the red line.  Both lines are below 50 so this is a neutral condition.

This was a good day for bulls.  However, they need to keep the pressure on to get an upside break out of this consolidation pattern.  A fake out break down as we just had yesterday often leads to a break out in the other direction.  However, there is no guarantee that such a break out won't fail.  Failures in both directions sometimes happen.  The action today says the market was not ready to go down yet.  I don't think we can assume that means it is ready to go up.  The bulls still need to prove themselves.  It is possible sellers will show up again when SPX gets near the recent highs.  This is the problem caused by the lack of a good selling climax.  Some day the market will decide which way it wants to go for more then a day or two.

Bob

Daily update 5/29 Some articles from John Mauldin on the future

Italy causes some angst.

SPX bottomed about 4 points above the 50 DMA and bounced into the close.  Breadth was -56%.  New highs dipped to 52 while new lows spiked up to 81.  There is the potential for support in this area.  SPX is still above the downtrend line, the red line that used to be resistance and the 50 DMA.  SPX is in much worse shape then either COMPX or R2000.   Both of those indexes showed quite a bit of relative strength today.  Theoretically SPX just broke down from a short term double top.  Any bounce from here must get back above the 100 SMA.

The futures show the break down from the possible topping formation.  The bulls need to strike back immediately.  We will see if they are up to the task.

The red count crossed above the green line, but remains below 50.  Sometimes a cross like this will bring out the buyers.  That is more likely to happen when the green count reached overbought levels before the negative cross.  On this rally the green count never did that. 

The VIX spiked up over 28% and the TRIN closed over 2 so a bounce in the morning would not be surprising.  Whether such a bounce will hold all day is the question.  Once again we did not get a good close on the low.  Not too mention the breadth was not highly negative.  The COMPX and R2000 were only down a little.  SPX volume was high, but no other sign of a selling climax exists.  The VIX surge suggests there was considerable hedging today.  The current bounce was not particularly strong to begin with so there is a reasonable chance it was broken today.  The bulls must get SPX back above the 100 DMA to get out of trouble.  I don't think we can depend on the relative strength of COMPX and R2000 as signals the market is in good shape.  If the market was truly in good shape SPX should have done better after breaking the downtrend line.  Instead it ran into stiff resistance.  There was clearly a flight to safety trade today as both bonds and the dollar were strong.  It remains to be seen if the worries remain in the days and weeks ahead or if this was a one day wonder on the downside.  I have felt like something was bothering the market for the last couple of weeks so there is definitely a chance that worries will continue to show up.  The bulls need to prove themselves and quick or the bears are likely to pounce.

A friend of mine sent these in (tnx Manny).  John Mauldin is putting out a series of articles on what he expects to happen in the next recession.  Here are the first three installments.  He does not know how many there will be.  There are some interesting ideas in them.
Credit-Driven Train Crash, Part 1
Train Crash Preview
High Yield Train Wreck

Bob

Daily update 5/25

The consolidation continues.

Sell programs continue to hit the market and keep the dip buyers busy.  That is keeping a lid on the price.  Breadth was -52%.  New highs were up a bit to 73.  New lows were stable at 42. 

The futures ended below the 20 SMA again. 

This consolidation is getting long in the tooth.  Maybe next week one side will give in.  This rally has not had a lot of oomph.  Even after breaking the downtrend line it has done nothing but go sideways.  That makes me wonder if this rally is going to end up rolling over like the other ones.  The bulls need to light the booster rockets and get going.

Have a great long weekend.

Bob

Daily update 5/24 New Highs In The A-D Line and the Small Cap Index Are Not Necessarily Bullish

Interesting day.

SPX opened down a bit and sold off slightly below the 100 SMA on news the NK summit was cancelled.  The dip buyers rushed in on the test of the 100 and pushed SPX back near break even.  Breadth was slightly negative.  New highs picked up a bit to 62.  New lows were stable at 47.   The sell off retraced the FED induced up move from yesterday.  Then the rally off the low retraced the news induced sell off.  Leaving SPX down a tad.

The futures nearly made it to the lower channel line again.  They ended the day back above the 20 SMA and are still there at the moment.  The consolidation continues.

The green count slipped to the lowest level of this consolidation.  It remains above the red line.  One thing that bothers me a little is the green count never reached overbought levels.  We have not had a good solid upside thrust on this particular bounce.  Since we broke the downtrend line it seems like there should have been more of a rush in to buy.  So far that is not happening.  Maybe it will, but until it does the rally is at some risk of rolling over.

I am not sure what to make of this action.  When a consolidation forms after penetrating an MA the usual action is to reverse back through that MA.  This can still break out on the upside, but it probably needs to get with the program.  How many more tests of the 100 DMA will continue to bring in buyers.  We now have 11 trading days with SPX on top of the 100.  Time to go one way or the other.

People are starting to talk about economic weakness in Europe.  We have already seen that in Asia.  Remember China loosened reserve requirements and both Japan and S. Korea have seen slowing.  ECRI's prediction that the global economy would slow down is playing out.  The U.S. may be starting to show some signs of losing momentum as well.  The latest word from ECRI a couple of days ago is their long lead indicators still have not turned up.  They expect further global slowing.  Maybe the market is picking up on that.

This is a very good article on market breadth.  New Highs In The A-D Line and the Small Cap Index Are Not Necessarily Bullish

Bob

Daily update 5/23

FED minutes sparked a buying frenzy.

After a sizeable gap down SPX reversed and closed at a slight new rally high.  Volume was good.  Breadth was barely positive.  New highs fell way down to 35.  New lows picked up a bit to 54.  SPX tested its 100 SMA twice intraday.  It found buyers both times.

The futures dipped below the 20 SMA overnight.  However, the bulls started buying at the open.  After a bit of a rally the morning low was tested and the buyers stepped in again.  The futures formed a triangle pattern just above the lows on intraday charts until the FED minutes came out at 2 PM.  I do not know what they said, but the buying was unmistakable (17 points).

The green count turned back up, but remains below 50.

After today's reversal some follow on buying tomorrow morning seems likely.  Whether that will be enough to cause a break out over the 5/14 high remains to be seen.  Investors did not appear to want to sell into this morning's gap down.  That allowed the bulls to hold price up.  Did the buying frenzy caused by the minutes really change things?  Good question.  Most of the time FED related news has only a limited affect.  I don't know if the people that were selling around that 5/14 high are done or not.   Maybe the news will cause them to step back.  This is the problem with not getting a proper climax sell off at the lows.  There was no selling vacuum for the market to rally into.  If the market gaps up tomorrow the sellers may come right back.  It is really hard to say.  A close below the 100 DMA seems pretty likely to be trouble now.

Bob

Daily update 5/22

Resistance held again.

SPX opened up a bit and rallied in the first few minutes above the 5/14 high.  However, the sellers came out of the woodwork.  The bulls lacked buying enthusiasm so the bears won the day.  Breadth was -59%.  New highs dropped down to 129.  New lows continued to fall and came in at 40.  SPX closed slightly below yesterday's low. 

The futures started the day slightly positive, but the sellers showed up right away.  The selling was minor through most of the day as the market waffled around.  After 2:30 PM the selling got more intense all the way to the close.  The futures tested the red resistance line from above.  They bounced enough to close above it.  Maybe old resistance will become support.  That remains to be seen though.  The bulls need to bounce off that line tomorrow.

The green count turned down a bit, but remains above the red line.

R2000 had a key reversal day.  I believe it was the selling in small caps that caused the afternoon selling to intensify.  I don't know if this is a problem or not.  SPX failed at the 5/14 high.  That high came with an overbought reading on the McClellan oscillator.  That makes it an important high for SPX to get over.  Otherwise we could end up with just another failed rally.

I think it is important for R2000 to find support above the prior highs.  A failed break out will likely cause more widespread selling.  It is also important for SPX to get above the 5/14 high.  If it falls back below the 100 SMA it could be trouble.  It is not clear to me how strong this rally really is.  I keep seeing sell programs intraday hitting the market for over a week.  The dip buyers keep rushing in to buy the pullbacks.  The question is who is selling and how much do they have left to sell.  If this market is going to go higher the buyers need to outlast the sellers.  I am expecting that to happen because of the break of the downtrend line and the 20 DMA crossing above the 50 DMA.  As you know the market does not always do what I think it will.  This is a time to remain vigilant and make sure the expected outcome actually happens.

Bob

Daily update 5/21 SPY option data

Bulls trying to restart the rally.

SPX gapped up on headlines lessening trade war fears.  Intraday it dropped below the open three times only to find dip buyers ready and willing to jump in.  At days end it closed at a new rally high, but below the 5/14 high.  That is key resistance it must close above.  Breadth was +67%.  New highs expanded to 181.  New lows slipped a bit to 57.

The futures held above the red resistance line.  Intraday there was still resistance.  The high came early in the day and there was some selling pressure in the afternoon.  Nothing the dip buyers could not handle though.

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

SPY options show key levels above at 275 and 280.  Those levels could be resistance or acceleration points if sufficiently broken on the upside.  Down below there is minor put support at 270.  The more important support level is 265.

So the bulls came out to play as expected.  R2000 continues to push higher at all time highs.  The bulls were not particularly aggressive today, but they came in on the dips.  SPX still needs to conquer the 5/14 high (2742).  It did not quite get up to that level today before the sellers showed up.  I don't see any technical reason why SPX won't get through that high, but until it does I guess you never know.  A close back below the 100 SMA could bring out some selling pressure.

Bob

Daily update 5/18

Dip buyers to the rescue.

Mid morning SPX dipped below yesterday's low, but bounced right back.  It held above that low all the way to the close.  That is generally bullish action.  Breadth was slightly positive.  New highs dipped a bit to 107.  New lows remained high at 73.  SPX looks like a consolidation above the 100 SMA.  So far the bulls are doing what they need to do.  The 20 SMA crossed above the 50 SMA today.  Some people consider that a buy signal.

The futures dipped below the low of the last 6 bars, but failed to collapse.  They ended the day still below the 20 SMA, but showing clear signs of support.

The green count dipped below 50.  In an uptrend that will often bring out the buyers.

SPX has worked off the overbought condition shown by the McClellan oscillator.  The 100 DMA has clearly worked as support.  The market looks poised to continue higher next week.  If the bears come out to play on Monday a close below the 100 DMA could bring on some more selling pressure and possibly end the rally.  Lets see if the bulls come out to play on Monday.

Have a great weekend.

Bob

Daily update 5/17

Hmm.

The market started out just fine.  SPX rallied above yesterday's high.  Then it stopped about 11 AM and started heading lower.  In the after noon some news hit about possible trade issues with China that caused a spike lower.  However, the dip buyers rushed in to buy that dip.  That left us with another doji bar and an indecisive chart.  Breadth was slightly positive.  New highs expanded to 146.  New lows were stable at 57. 

The futures ended the day just above the 20 SMA.  Yesterday's launch was aborted this morning.  That calls into question whether the current pullback might have more to go after all.  The futures have been above my resistance line three times and failed to stay there. 

The green count remains above 50, but it turned down a little. 

I get the feeling that tomorrow may be important as to whether the pullback has further to go or not.  While the breadth is pretty good on this bounce the NYSE ticks do not look particularly strong.  I showed the divergence in the number of SPX stocks above their 200 MAs last night.  I have some questions about the sturdiness of the current bounce.  I think the bulls need to show up tomorrow to keep it going.

Bob

Daliy update 5/16

Bulls strike back.

The market gapped up and bulls kept the bears at bay until a late afternoon dip.  However, the dip buyers came in once again to push the market up a bit into the close.  Breadth was +61%.  New highs increased considerably to 121.  New lows dropped to 56.  SPX may have kissed the trendline good bye.  It needs to close above that red resistance line to confirm.

The futures bounced off the 20 SMA.  So far so good. 

The green count turned up nicely and made a new rally high.  It remains a bit below overbought levels.

The number of SPX stocks above their 200 MAs has still not made it above the April high as SPX itself has done.  This is a negative divergence, but is only a problem if SPX rolls over around here.  If SPX keeps heading higher this indicator should eventually confirm.

I chuckled today when I looked up at CNBC and saw a headline asking if rising rates and a rising dollar could derail the rally.  I posed that very question in yesterday's blog in case you missed it.  We know from recent history that a rising dollar tends to act as tightening to the global economy.  We also know that there is some magical level interest rates get up to that will definitely cause a recession.  The problem is that key level changes over time.  There is no doubt that if the dollar and/or rates go high enough they will kill the bull market and cause a recession.  Unfortunately nobody knows what levels would do that or when we will reach them.  Based on the FED's past history odds are high they will keep raising rates until they cause a recession.  The so called soft landings are very rare.  On the global economic front we had some interesting news out of Japan.

Japan's economy contracted more than expected at the start of this year, breaking the longest run of growth seen for decades, in a blow to Prime Minister Shinzo Abe's reflationary 'Abenomics' polices. 

Wednesday's data marked the end to eight straight quarters of economic expansion, which was the longest sequence of growth since a 12-quarter run between April-June 1986 and January-March 1989 during the asset-inflated bubble economy. 

The economy shrank by 0.6 percent on an annualized basis, a much more severe contraction than the median estimate for an annualized 0.2 percent.
Fourth quarter growth was revised to an annualized 0.6 percent, down from the 1.6 percent estimated earlier. 

There has also been some soft data from S. Korea, but that is not unusual post Olympics.  So far the U.S. is still plugging along.

The bulls held off the bears and are still in control.  R2000 closed at a new high.  That is a positive as long as it stays out there.  It didn't make it by much so that remains to be seen.  

Bob

Daily update 5/15

Pullback from the upper channel line started.

SPX tested below the 100 SMA and traded down to around the downtrend line.  A big bounce in the last 15 minutes got SPX back above the 100.  Breadth was -62%.  New highs dropped down to 66.  New lows jumped up to 99.  Bonds were hit pretty hard today so some of those new lows were probably bond funds. 

The futures held support at the 20 SMA.  Will they break or launch from that line?

The green count dropped considerably, but remains above 50.

Both the bulls and bears took turns today.  There were some sharp moves in both directions.  The bulls just happen to get the last laugh into the close.  I can't say the selling was exhausted since the bears did not get a chance to respond before the market closed.  I guess we will find out tomorrow.  Inflation worries surfaced again today as the 10 year yield closed solidly over 3% at a new recent high.  This is the third attempt to cross 3%.  It might stay there for a while this time.  The dollar was also strong and closed at a new high for the year.  The VIX was up over 13% which seems excessive for the amount SPX was down.  Will a rising dollar and rising rates derail this bounce?  I don't know, but it seems like some people might be getting a little nervous.  A lot of traders were talking about that today.  A close below today's low might be problematical for bulls.  The bulls need to absorb the selling without too much price damage or the flood gates might be opened. 

Rising rates should not come as a surprise.  In Daily update 2/1 Has the interest rate environment changed?   I showed a monthly chart of the 5 year rate with the 50 MA crossing above the 100 MA that had not happened since crossing below back in the 80s.  I said that might be signaling a major change in the interest rate backdrop we have been experiencing for decades.  So far that appears to be playing out.  With stock valuations high that could be trouble.

Bob

Daily update 5/14 SPY option data

SPX ran into some resistance.

SPX ran into sellers at the 3/19 high and the upper Keltner 50 channel line.  It closed 12 points off the high.  Breadth was -54%.  New highs were up a bit to 119, but well less then then 144 we had on 5/9.  New lows increased a bit to 32. 

The futures pulled back from their high today, but remain above the upper channel line.  Closing back inside that line should signal the current thrust has ended and the market is in consolidation mode.

The green count turned down, but remains above 50.  The intermediate indicator continues to increase.  This is good as long as the current rally does not fail. 

The latest look at the SPY option data shows a lot of calls at these levels and above.  The 275, 279, and 280 levels really stand out.  They can be stiff resistance or acceleration points if the bulls push through them.  Notable put support comes in at 265. 

R2000 was down -.4% today which matches up with the negative breadth.  It fell about 1 point short of making a new high before the selling started.  It is the only major index that close to its high.  It has been leading this bounce and it will be important to see how it handles this test of the high.  If things do not go well it could cause some selling in the bigger cap indexes.  If it breaks out and stays there it could bode well for the other indexes.  Since SPX touched its upper channel line and met some resistance a pullback here would be normal.  There are a lot of MAs that could catch a pullback.  There is also the matter of the downtrend line.  A pullback to kiss that line good bye and strong bounce could be very bullish.  Falling back below that line could be a problem. 

Bob

Daily update 5/11 More evidence of global economic slowdown

Pattern break.  Well maybe.

SPX closed about 1.5 points above yesterday's high.  Technically it is different this time from the last three peaks, but 1.5 points isn't much.  Breadth was +51%.  New highs dropped again to 109.  That is the second day in a row SPX went higher but new highs declined by a noticeable amount.  New lows dropped to 27.  Since this correction began SPX has reached the upper Keltner 50 channel line (dashed purple) twice and turned back.  SPX came within four points of that line today.  One common action is to approach that line and pullback to the 50 SMA then rally through the upper line.  The other rallies failed to stop at the 50 on the way down.  Going back to test the 50 would put SPX back below the downtrend line which could be viewed by some as bearish.  While SPX has climbed above the downtrend line the volume the last two days is rather light.  Not a lot of conviction behind the move.

The futures managed to close above resistance.  There was some intraday selling that indicated there really is resistance here.  However, dip buyers stepped in to buy those pullbacks.  Today's buyers were likely break out players.  That source of buying probably won't last long.

The green count is still a bit below overbought.  The intermediate indicator has climbed to 52 the highest it has been in this correction.

The VIX closed at 12.65 which is the lowest level during this correction.  Is that good or bad?  COMPX closed slightly red.  The market is a bit extended so a pause soon is likely.  How the market deals with this overbought breadth situation will tell us a lot more about whether this correction is over or not.

Here is another chart showing the potential for global economic weakness.

Leading indicators are still falling.  We can expect further weakness in the months ahead globally.  So far the U.S. is holding up, but that is likely because of the natural disasters last year.  That influence will be waning in the months ahead.

In many offices this is what happens...

Have a great weekend.

Bob

Daily update 5/10 Stoking the Embers of Inflation

Upside break out.

SPX closed above the downtrend line, the 100 SMA, and the 4/18 high.  Breadth was +67%.  New highs dipped to 130.  New lows dropped considerably to 33.  I circled the last three peaks because they all have something in common.  The third day after crossing the 50 SMA the market started down again.  That pattern can be broken with a close above today's high. 

The futures made it up to a resistance line I had on the chart and sold off.  The dip buyers came in to push them back up a bit into the close. It remains to be seen if that red line will be a problem or not.

The green line pushed across 50, but remains below overbought levels.  The intermediate indicator crossed 50 albeit just barely.  This indicator already crossed 50 once and failed.  In this case I think I want to see 55 because it almost never fails at that level. 

The breadth chart shows the McClellan oscillator around 130 for the fourth time in this correction.  The last three signaled tops rather than initiation of a new leg up.  Will it be different this time?

I honestly don't know what to think.  It bothers me that we did not get any sign of selling exhaustion at the recent lows.  With the McClellan oscillator up high it should not be long before we know if the sellers are going to come out in force again.  What happens if we close right back below the 100 DMA soon.  Will the 50 or 20 SMAs that lie well below provide support if tested?  The correction may have come to an end or we could be forming a second double top lower high.  I think we are getting close to knowing, but are not quite there yet.

This is an interesting look at the FED's effect on inflation.  Stoking the Embers of Inflation

Bob