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Wednesday, May 2, 2018

Daily update 5/2

Another failed rally.

The market traded mostly sideways before the FED announcement at 2 PM.  There was a bit of a pop after that.  However, sellers showed up to sell into that strength and kept on going right into the close.  Breadth was slightly negative.  New highs were up a bit to 70.  New lows were down a bit to 62.  Not a pretty chart with SPX closing below the low of the key reversal day.

The futures made two attempts to get above the 20 SMA, but found nothing but sellers. 

The red count still did not cross 50, but remains above the green line. 

All through this correction Bob Pisani has been pointing out all the positives and has clearly been expecting the market to make new highs.  Today he sounded discouraged for the first time.  He said the bulls got everything they wanted today and still the market fell.  The market is clearly heavy.  The elephant in the room nobody wants to talk about is QT.  The FED is taking $30 billion a month out of the financial system.  When Yellen announced the program she said it was going to be like watching paint dry.  However, QT had never been done before and nobody knew how it would play out.  Whether that is the drag on the market I do not know, but it definitely could be.  You know the mantra don't fight the FED.  Being bullish at this point in time is fighting the FED.  The economy is chugging along, and earnings have been great.  QT might be the main reason for the market failing to rally.  Unfortunately there is no way to know for sure.  If that is the main driver we have a problem.  QT is not going to be over soon.  Just the opposite.  It is going to get more intense each quarter the rest of the year.  If only my crystal ball had not stopped working.

Keep in mind if the market continues down there are a lot of put options at the SPY 260 strike.  That could be strong support, but an acceleration down if SPY gets below 259.5 or so.


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