Daily update 8/16

Bulls fight back with the help of news of more talks coming between the U.S. and China.

SPX came within 1.5 points of closing the 8/10 gap down.  That is close enough to call it closed.  The sellers did not wait for it to get all the way there.  That happened shortly after noon and the market drifter lower all the rest of the afternoon.  Breadth was strong at +70%.  New highs picked up a bit to 96.  New lows dropped way down to 50.  SPX ended 10 points off the high.  Tomorrow will be interesting.

The futures came within .5 points of closing the 8/10 gap.  They ended the day above the 20 SMA, but without confirmation of a break.

The red count retreated considerably, but remains above the green line. 

Every other day this week has gone a different direction.  If the pattern repeats tomorrow will be down.  The price pattern since the break out above 2800 is starting to look like a possible head and shoulders top.  A break of 2800 (neckline) is likely to bring on considerable selling.  There is clearly things the market could grab onto for reasons to take some profits.  We will just have to wait and see if that is what happens.  Since April the market was clearly looking for reasons to buy.  We have had a few days lately that might be indicating the mood is changing. 

The big picture is muddled here to me.  The advance/decline line made new highs even though SPX did not.  That is supposed to indicate that any pullback from here should be a correction and price should rebound to at least test the high again.  The strength of the U.S. economy also suggests that should be the case.  The fly in the ointment is that globally financial stocks have sold off considerably.  On top of that copper and other commodities have also sold off.  That is because the global economy is clearly slowing.  Normally the mid term election pullback which can be pretty significant some years is a great buying op.  The next year tends to be up big.  However, in this situation with the FED doing QT and raising rates combined with the weakening global economy something could go wrong.  But will it?  I have mentioned a few times that I have always had the feeling this bull market would end because of problems outside the country.  I think I can see storm clouds hovering over the global economy.  The question is whether a thunderstorm is brewing or a hurricane.  I don't think there is anyway to know just yet.

Bob