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Tuesday, May 22, 2018

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.


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