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Tuesday, May 29, 2018

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


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