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Wednesday, June 27, 2018

Daily update 6/27 Dow 200-Day Break Could Be Brutal for Stocks

Big intraday reversal.

SPX closed slightly below the 100 SMA.  It came within three points of Monday's low so this is a valid test of that low.  The result of that test is still to be determined.  News out of the WH early this morning regarding CIFIUS and China sparked a lot of buying premarket and early on in the regular session.  However, mid day the sellers showed up and dominated the afternoon.  SPX closed right near its low for a change. 

The futures were down considerably overnight before the news hit.  The morning rally took the futures up to the 20 and 100 SMAs.  That is where the sellers went to work and sent them back below the overnight low.  They closed just above the 200 SMA.  Quite a day.

The red count is approaching an oversold condition.

Art Cashin stopped by CNBC this morning and talked about a lot of rebalancing going on because of the major out performance of tech and small caps.  That would explain why COMPX and R2000 have been showing relative weakness this week.  The problem with a rebalance is nobody really knows how much work there is left to do.  So what happens the next two days is unknown.  However, the aftermath of this rebalance seems likely to draw in bargain hunters for a bounce in early July.  What happens after that might be up to the trade situation.

Interesting article on 8 day losing streak of the Dow and a break of the 200 DMA after a long period above it.  Dow 200-Day Break Could Be Brutal for Stocks

Before Monday, the last time the Dow closed below its 200-day moving average was June 28, 2016. Thus, the index stayed above the moving average for almost two full years. It’s just the sixth time we’ve seen this since 1900 (as far back as we have data). There is no good news in the table below showing what has happened after each of these instances. Six months after the break, the Dow was negative every time, while four of the five times, it was down double-digits in the next six months.

All five of the prior instances saw the Dow in the red six months out.  Four of the five saw the Dow down one year out.  You don't see stats like that about the market very often.  Keep in mind the sample size is small.  Maybe it will be different this time.  However, SPX continues to look like a possible bull market top forming.  With the global economy weakening and the FED doing QT and raising rates the market being down from here six months out is certainly possible.


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