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Friday, July 27, 2018

Daily update 7/27

Serious profit taking.

After a gap up on the strength of AMZN's earnings the sellers went to work again.  This time they were a bit more ambitious then the other day.  Breadth was -66%.  New highs dropped way down to 68.  New lows picked up a bit to 36.  I had drawn the uptrend channel on another chart I look at during the day and noticed it showed SPX hitting the upper trend line.  So I redrew that line on this chart to match.  Trend lines are always subjective.  That might explain the more significant selling today.  I don't know if that means we are headed to the lower trend line or not, but that is a possibility.

The futures came back inside the channel first thing this morning then proceeded down below the 20 SMA.  They ended the day below the 20,but without confirmation of a break.

That was a short lived trip above 50 for the green count.  There is a triple negative divergence possibly forming in this indicator.  That could mean SPX is forming another important top.  If the bulls show up again that also means there should be more room to run before becoming overbought again.

It is interesting that the sellers came out on the days the market gapped up on blow out earnings by GOOG and AMZN.  We are coming into the seasonally weak months of Aug. and Sept. With the lack of strength in this rally a sizable pullback would not be a surprise.  COMPX (-1.46%) and R2000 (-1.89%) which have been the leading indexes this year were hit hard.  I don't know if investors read the fine print on the U.S.- EU trade news or were just in the mood to book some profits.

I sure wish I knew what money managers are thinking.  FB is one of the biggest positions in most hedge funds.  Are most of them willing to hold on or are they looking to get out?  Will the FB miss make some of them rethink their big positions in the other high flyers? The high flying must own stocks always see a 30-50% draw down when the sentiment changes.  The hard part is telling when that sentiment is changing.  He who sells first sells best when it does.  I have no way of knowing whether such a sentiment change is about to happen or not.  It is a possibility with the FB miss, but it will take some time to see how things shake out.  Next week will be interesting.  The most common response to a day like today coming off the high is to bounce the next trading day.  If we get a bounce on Monday the strength of that bounce might give us some more clues.

Have a great weekend all.


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