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Wednesday, October 31, 2018

Daily update 10/31

Follow through buying.

SPX shows strong volume again.  There was a late day sell off that took SPX off its high.  That is a common phenomenon at the end of the month.  The market usually undoes that the next day.  Breadth was +58%.  New highs were 25.  New lows dropped way down to 133.

The futures confirmed a break of the 20 SMA.  That is the first step for the bulls.

The green count crossed above the red line.  The bulls are attempting to take control in the short term.

So far so good for the bounce.  SPX has taken the first steps for the bulls to take control.  Obviously the bulls need to keep applying upward pressure.  As oversold as we were that seems likely unless we get some bad headlines.  Many companies are exiting the black out period for share buybacks so that could apply some upward pressure.  Historically the market almost always rallies into an election.  We are also coming into the first of the month which usually has a bullish bias.  All things considered the bulls should be able to take charge for a while. 


Tuesday, October 30, 2018

Daily update 10/30

Now we are talking.

Nice rally on big volume.  This could kick off the pre-election rally.  Breadth was +67%.  New highs were up a bit to 30.  New lows dropped again to 324.

The first bar on the futures closed with green color and last bar of the day closed above the high of that bar.  That did not happen back in the middle of Oct. when the market last tried to mount a bounce.  This is the best bounce setup since the pullback started.

The red count dropped below 50, but remains above the green line.

The stage is set for an oversold rally.  The market often rallies into an election anyway.  What happens after that will be interesting.  With the technical damage done on this sell off a retest of the low would be highly likely.  First things first though.  Lets see if the bulls show up and make the rally happen.

Some interesting information in here.  Weekly Market Summary 

SPX fell 10% in February this year. It's down 10% since its all-time high (ATH) in September. Two falls of 10% from an ATH in one year has only happened once since 1960 (in 1990; data from Josh Brown). It's an exceptionally rare event.

When SPX has been in an uptrend (defined as above the 12-month ma), SPX has fallen more than 9% in one month two times in one year only 3 other times: in 1980, 1990 and 2000 (yellow highlights). There was a recession and a bear market within a year each time (data from Steve Deppe).

The rapid fall has pushed weekly momentum (RSI; top panel) over the past 5 weeks to under 14. In the past 40 years, this has only happened during bear markets: 1981, 1987, 1990, 2001-02 and 2008. None of these happened within 5 weeks of an all-time high, which is the case this time. SPX subsequently continued lower each time, although in 1981 and twice in 2001, SPX jumped 11%, 12% and 19% within two months (table below from Troy Bombardia).

The door is open to the market starting a bear market.  The double top pattern is obvious, but I hardly hear anybody talk about it.  The rally into that double top was weak as would be normal if it truly was going to be a top.  The SPX 200 DMA has turned lower which some people use for the major trend of the market.  I heard today the last time the 3rd year of the presidential term was negative was 1946.  It normally is a big up year.  So this may be a false alarm, but we can't know that yet.  There really is a trade war going on.  I don't see it ending anytime soon.  Caution is advised.

The latest quarter shows Eurozone GDP grew at the slowest rate in four years.  Economic data so far has backed up ECRI's call for a slowing of growth in the global economy.  There is no indication from ECRI that their leading indexes have turned up either.  Further slowing is likely.


Monday, October 29, 2018

Daily update 10/29 The Last Two Times The US Economy Was This Strong, A Recession Was Less Than A Year Away


After a gap up SPX was up well more then 1%.  Then the collapse started.  Late in the day SPX was down well more then 1%.  We just don't see that kind of action in a normal bull market.  We are in a very severe correction or a new bear market.  Breadth was +79% early in the day, but ended at -55%.  New highs picked up to 19.  New lows dropped considerably to 390.  Interesting since SPX dipped well down to new lows for the pullback.

The futures made a new closing low for this pullback.  That last bar was quite big.  I want to show the action on a 5 minute chart because it was spectacular to end the day.

The blue bar in the circle had a 17.25 point range high to low.  The next bar was even more wild.  It had a range of 29.25 points.  The end of the day also saw a surge of volume on the rebound.  Once again traders are trying to catch a bottom.

The red count remains in oversold territory.

The TRIN was 1.02 so no panic again today.  There seems to be no end to the sellers.  Definitely no real panic.  Therein lies the problem.  It seems like there should be some fear out there.  I just don't sense that.  The market can bounce for a few days because it is oversold, but I don't see any sign this would be a durable bottom from here.  The last rally to the Sept. high looked technically weak like it was a terminal rally in this bull market.  The sell off this month has done nothing to contradict that idea.  It looks more like it is reinforcing the idea we could have started a bear market.  The underlying economy is still ok for now, but something is bothering investors.  It could be that people are figuring out that neither Trump nor Xi are going to back down and settle things between China and the U.S. anytime soon.  If that is the case I would not expect this turmoil to end anytime soon either. 

The FANG stocks were clearly responsible for the market's turnaround from this morning.  There is a massive run for the exits.  How much longer it lasts is impossible to say at this time.  The hedge funds had loaded up on these stocks beyond belief.  The rest of the market is not going to put in a serious bottom until that selling is over.

Interesting read from ECRI.  The Last Two Times The US Economy Was This Strong, A Recession Was Less Than A Year Away


Friday, October 26, 2018

Daily update 10/26 SPY option data

Another volatile day. 

Another high volume day.  Breadth was -70%.  New highs were 11.  New lows spiked up to 511.  There was a big rally mid day, but then another sell off in the afternoon.  SPX ended well off the low, but still below the open. 

The futures are oversold.  What else is there to say?

The red count is back into oversold.  The intermediate indicator has not been this low since the late 2015 and early 2016 sell offs.  You have to go back to 2011 for next occurrence. 

It looks like the market is in the top four oversold conditions since the 2009 rebound.  One major difference this time is the FED is doing QT.  They are now doing $50 billion a month.  It is clearly having an affect world wide.  The price action looks like traders are trying to catch an oversold bottom, but many money managers are still looking to sell.  There does not seem to be any panic in the air that I can detect.  TRIN was low once again.  We have only had one day with the TRIN over 2.  In Feb. and in the 2015 and 2016 pullbacks there was at least one reading over 3.  So do we have enough fear to make a bottom yet?  Beats me.  I have no idea what is going to happen on Monday.  Bad weeks in late Oct. have been followed by crash Mondays or big rally days.  Buckle your seat belt.

Here is a look at Nov. options.

It looks like there is a lot of put support at 265.  That may be helpful for making a bottom here.  The next level down would be 260, but it is not as strong.  There is no call option resistance in sight.  SPY closed above 265 today after multiple dips below it.  Will this option support be strong enough to make a short term bottom?  If the market heads south again on Monday we could see delta hedge selling accelerate the downside.  How we open on Monday could be very important.

Have a great weekend.


Thursday, October 25, 2018

Daily update 10/25

Good earnings brought out a pack of buyers.

The market gapped up and kept on going until very late in the day.  SPX was briefly above the 10/11 low before some selling kicked in.  Breadth was +70%.  New highs were 12.  New lows dropped to 297.  Interesting volume pattern.  The volume yesterday saw a slight decrease from the 10/11 low.  Today's rebound saw nearly as much volume as yesterday and well more then the 10/12 rebound day.  This chart looks capable of supporting a decent bounce.  The trouble may be the earnings that came out after the close.

As I write this the futures are down 36 points from the 4 PM close.  GOOG and AMZN had very negative reactions.  With the futures down this much there probably were others as well.  Who knows where they will be by morning though.

The red count dropped, but remains near oversold levels.

The SPX chart looks decent for a bounce.  Where the futures will be by the open is anybody's guess.  There could be better reports before the open that helps the bulls.  As long as we don't close below today's low the bulls will have a chance to rally the troops. 

I wonder if this comment from the BOJ was aimed at the FED.

  • Bank of Japan Deputy Governor Masazumi Wakatabe said that trying to burst an asset bubble with tighter monetary policy could tip an economy into a serious recession.  
History shows all bubbles pop whether helped by a central bank or not.  

More signs of the struggling global economy.

  • Germany's ifo Institute noted that growing uncertainties will likely prevent the German economy from reaching the 0.6% growth forecast for the fourth quarter, but the GDP growth forecast for 2018 was left unchanged at 1.7%.


Wednesday, October 24, 2018

Daily update 10/24

Splat.  I was afraid that would happen.  On Monday I wrote: "We now have had a seven day consolidation since the low.  There is likely to be another big move once this consolidation breaks.  I am starting to think if the break is to the downside the recent low might now hold.  I heard Pisani on TV saying that companies that have beat earnings expectations are not doing well.  The bulls have been counting on good earnings to drive the market higher.  If that does not do it then what will?"

I squeezed the chart up a bit and marked the remaining support levels nearby.  We had another two days of high volume.  Maybe this time will make a climax.  Breadth was -75%.  New highs were actually up a bit to 26.  New lows were down some from yesterday at 466.

After the close the futures bounced a bit off the low.  The TRIN finally closed over 2 so a bounce in the morning could be in the cards.

The red count shot up to oversold levels again.  There is a slight positive divergence here.  It remains to be seen if that matters.

Lets take a look at the weekly SPX chart.

SPX hit the lower Keltner channel line and stopped.  When something has been outside the channel for a long time and crosses all the way across it often stops.  This is the first time we have had a downside blue bar on the weekly chart since 2015.  Price is oversold and on potential support.  That does not mean SPX will stop here, but it is a possibility.

Today was the first day in this entire pullback that saw a TRIN over 2.  That low TRIN reading from 10/11 was a fly in the ointment on making a bottom.  The higher TRIN today might give us a better chance at launching a bounce.  I suspect today's price might have gone enough below the previous low that it will need to be tested in the future if we get a trading bounce.  There is no law that says people can't sell into a TRIN induced bounce.  A gap up tomorrow is no guarantee the selling is over.  The market needs to prove it is ready to stop going down for a bit.

In the bigger picture it is time to be very careful.  We have a picture perfect topping pattern on SPX.  We also have many technical issues that indicate the possibility the bull market is over.  SPX broke its 200 DMA for the first time since crossing above it in the spring of 2016.  Despite the sizable and rapid down move I do not hear any sense of fear.  All I heard today was this is a buying op.  That may be true, but we don't know that yet.  When there is a clear potential topping pattern it is usually better to hear fear in the air.  I have not had any sense of that in this pullback.  Bulls are fighting the FED.  It is possible the FED is now winning.  Global liquidity is drying up and if the ECB goes ahead and stops its QE program it will dry up faster.  What I learned over the last two weeks is that when the algos start selling down moves get a little out of hand.  That is happening while nearly everybody still thinks we are in a bull market and are buying dips.  What happens once the majority realize we are in a bear market and cut way back on dip buying?  We could see some circuit breaker action down the road.


Tuesday, October 23, 2018

Daily update 10/23

Turn around Tuesday strikes again.

After the big gap down opening SPX tested below the 10/11 low.  After a little bit of overshoot buyers stepped in.  They closed the gap, but did not get a positive close.  Breadth was -67%.  New highs were 10 while new lows jumped up to 479.  That was a little less then the 519 new lows on the 10/11 low.  A slight positive divergence.

The futures are down a bit after hours.  The last bar of the trading day was a bullish engulfing bar.  Potentially positive with upside follow through.

The red count just barely crossed 50.  There is a sizable positive divergence with the 10/11 low.

For today the retest was successful.  There are some clear short term positive divergences that could be signaling a short term bottom.  The bulls still need confirmation of today's sort of reversal.  SPX did not get green so in effect it was still a down day.  A late Oct. bottom and rally into the election is a common pattern in mid term election years.  Maybe we are setting up for that.  The setup is there.  The bulls just need to show up and make it happen.  If for some reason that does not happen the positive divergences will end up meaning there is plenty more room to run on the downside. 

Interesting headline from Japan.

Former Bank of Japan Governor Masaaki Shirakawa cautioned that monetary policy can't provide a quick fix for the Japanese economy, adding that growing global debt might lead to the next economic crisis. 

The BOJ has been printing money since 2001.  It almost sounds like they might have figured out after nearly two decades it does not solve the problem of too much debt.  Ray Dalio talks about the theory of a beautiful deleverage where central banks print money in just right amount to keep the economy going while people deleverage.  The problem is that the low interest rate environment causes more debt and there is no actual deleveraging.  


Monday, October 22, 2018

Daily update 10/22

The bears attempted to start a retest of the low, but the dip buyers thwarted that effort a little bit today.

The overseas markets were all positive overnight.  That led the futures to gap up at the open.  However, sellers showed up and sent the market lower.  When SPX got down to the 10/15 low dip buyers showed up.  The buyers held the market up the rest of the day.  Breadth was -57%.  New highs were 20.  New lows were 273.

The futures failed at the 20 SMA.

The red count turned up again.  The sellers came out a bit today.

The positive backdrop from overseas markets brought out some buyers today.  The COMPX and SOX were even green.  However, every intraday rally in SPX was sold into.  It seems to me if we had a true selling climax on 10/11 the market should be able to do better then it is.  SPX was above the 200 DMA twice this morning, but was unable to hold it.  We now have had a seven day consolidation since the low.  There is likely to be another big move once this consolidation breaks.  I am starting to think if the break is to the downside the recent low might now hold.  I heard Pisani on TV saying that companies that have beat earnings expectations are not doing well.  The bulls have been counting on good earnings to drive the market higher.  If that does not do it then what will?  The bulls need to show up in force or this market could get into serious trouble.


Friday, October 19, 2018

Daily update 10/19

Uh oh!

The bulls showed up this morning and mounted a strong rally early on.  Breadth was +73% just after 10 AM.  However, by the close it was slightly negative.  That is a significant reversal.  SPX closed 1 point below the 200 SMA.  Ugly candlestick for bulls.  New highs were a paltry 17.  New lows were stable at 240. 

The futures show a bearish engulfing bar to end the week.  They closed back below the 20 SMA.  This looks a little bearish for Monday.

The red and green lines came together today.  On the way up this condition often brings out buyers.  So next week it might bring out sellers.

The bulls were clearly trying to defend the SPX 200 DMA this afternoon.  However, today's failed rally may make that a difficult task for Monday.  I think we might be in for the retest next week.  It is not clear to me it will be successful.  At one point on 10/17 just one day after the big upside explosion the breadth was -78%.  Yesterday the breadth was -74% and today it was negative after being +73% early in the day.  If the recent bottom was a true volume climax then it seems to me the selling the last three days should not have been so strong.  SPX can go somewhat lower and still have a successful test if it rebounds strongly.  I am not sure what happens if we break the recent low and keep going.  Below 2700 support looks somewhat nebulous until we get to the Feb. low.  Be prepared for anything next week.

Have a great weekend.


Thursday, October 18, 2018

Daily update 10/18 But what if it is the start of a bear

Sellers reappear.

SPX sold down below the 10/16 low and below the 200 SMA.  Dip buyers came to the rescue and got the close just at the 200.  Breadth was -74%.  New highs were 7.  New lows picked up to 245. 

The futures ended up below the 20 SMA.  However, there was a significant bounce off the lows.

Despite the move down the red count dropped below 50.

SPX closed above the 10/16 low as well as the 200.  I think that keeps the door open for the bounce to continue.  I don't know if the bulls will step through that door though.  It is not clear to me if this was a bump in the road or the start of a retest.  I have mixed signals here.  Breaking today's low should continue lower for the retest.  If the bulls show up in the morning maybe today's late day bounce keeps bouncing.

Last night I highlighted an article saying why it is unlikely we are starting a bear market.  I have to say that what the article said about the economic data is generally true.  The problem we have today is the global economy, not the U.S. economy.  The rest of the world is in a synchronized slow down.  Their stock markets and industrial metals prices seem to confirm that as true.  Even so that might not be terrible if the global economy turns back up.  However, there is no word from ECRI saying their long lead indexes have turned up.  In the U.S. the auto and housing sectors have already started to slow.  If the global economy starts to drag on the U.S. our economy could slow faster than people expect.  The most troublesome thing I see is that global financial stocks are not acting well.  It isn't just XLF that is in poor shape.  It will take a while and lower prices to confirm we are in a bear market.  Maybe we see strength come in and the indexes make new highs and clear the air.  What if that does not happen?  Time to be vigilant and watch closely.


Wednesday, October 17, 2018

Daily update 10/17

 Pause day.

The morning saw a sizable retrace of yesterday's rally.  However, the dip buyers stepped in and sent SPX above yesterday's high.  However, there was clear resistance there the rest of the day.  Breadth was -61%.  That was pretty negative considering the size of the move in the major indexes.  New highs were 14.  New lows picked up a bit to 124.

The futures stalled after crossing the 20 SMA.  No confirmation of a break and the MA is sloping down pretty sharply.  The bulls need to hold the market up again tomorrow or there is some risk the bounce rolls over.

The red count barely moved today.

We had resistance at yesterday's high today.  Whether it is insurmountable or not I do not know.  During this mornings sell off the breadth was -79%.  That is awfully high after a strong day like yesterday.  The rally pared that down considerably, but clearly investors were happy to sell a broad number of stocks today.  I would think the volume climax selling we had last week would allow the market to go higher from here before we head back down for the retest.  It might be a bumpy ride though.  We also need to be cognizant that the market could decide to roll back over at any time.

Interesting bit of research I saw today from Urban Carmel.  This Isn’t The Start of a Bear Market
One interesting fact for our short term situation was in there. 

SPX has fallen 3 weeks in a row, for the first time since June 2016. Since 2003, SPX has fallen 3 weeks in a row more than 20 times, and all eventually retested or exceeded the low, at least intra-week. This almost always occurs within the next 3 weeks but in 2004 and 2015 it took 6-7 weeks to occur 


Tuesday, October 16, 2018

Daily update 10/16

Teeter without the totter.

The market gapped up on earnings news and after fooling around a bit found plenty of buyers.  Breadth was +82%.  New highs were a paltry 14.  New lows continue to fall and came in at 85.  Volume was a little better then yesterday.

The futures rebounded nicely, but remain below the 200 SMA.  When SPY broke down through 280 level there was a lot of delta hedging which greatly helped the cascade down.  Today was the reverse.  As the market rallied it was greatly helped by traders pulling off the hedges.  SPY closed just below 280.

The red count dropped considerably.  It is below oversold levels, but remains above 50.  One more strong day could take care of that.

During the Feb. sell off the long term lines maintained a green cross.  They did not get a negative cross until late March when the Jan. rally data fell off.  In this case we got a negative cross right away.  The long term lines also registered the most selling pressure since going into the 2016 election.  I am not sure if this means anything long term or not.  That depends on what kind of strength we see.

The market bounced without the retest.  My theory is that we still need a retest.  One scenario could be for SPX to bounce up to the lower channel line to kiss it good bye.  By the time it would get there the 50 DMA would be fairly close to the line.  A weak bounce into that area could spell trouble.  If SPX can get a confirmed break of the 50 DMA then the odds of a retest would go down dramatically. 

As you can see from the bull pressure chart above the long term green line was barely above the red line at the high.  On top of that we had all those new lows.  The price pattern is a potential double top with a slightly higher high.  The technical picture indicates this is a possible bull market top.  Confirmation of that would be for the major indexes to break their Feb. lows.  That scenario would be negated by good strength coming in and new highs in the major indexes.  Until we see that the market is at risk.  I was worried about a top in 2015.  However, that top only lasted a year and did not see that big of a drawdown.  The technical condition of the market at this high is much worse then 2015.  Historically the stock market has struggled when unemployment gets below 4%.  Probably because that condition is often short lived.  The FED usually ends up causing a recession.


Monday, October 15, 2018

Daily update 10/15

Teeter totter. 

More money out of big gap tech.  Some went into small caps this time.  Breadth was +56%.  New highs were a pitiful 9.  New lows dropped to 203.  Volume dropped way off today.  Intraday there were three waves of buying and four waves of selling.  The sellers were active going into the close. 

The red count has turned down a bit.  It remains oversold.  The intermediate indicator has not been this low since the early 2016 low.  Most of the time there is some kind of double bottom price structure involved with the final price low.  The time period involved can vary greatly from a week to several weeks.  True V bottoms like Oct. 2014 also happen occasionally.  I don't think that will happen this time as that sharp sell off was due to ebola fears.

I think it unlikely we V bottom right back to new highs, but otherwise I have no idea how this will play out.  It may depend on what companies say about the future in their upcoming earnings reports.  Before the market can mount any real rally big cap tech will have to play along.  Today QQQ was down 1.3%.  A successful retest of Thursday's low could bring about a bounce.  A failure of such a test could cause another mini cascade lower.


Friday, October 12, 2018

Daily update 10/12


While SPX was up 1.42% the breadth was only +53%.  That is very narrow for the size of the move.  Volume was good though.  New highs were 8 again.  New lows came in at 383.  SPX closed just barely above the 200 SMA.

The futures have stabilized at least.

Fortunately the market bounced today.  There was good buying late in the day, but SPX was unable to close above the open.  Things look setup to continue the bounce on Monday.  Given the technical damage that was done a retest of yesterday's low is likely at some point.

Have a great weekend.


Thursday, October 11, 2018

Daily update 10/11

Got some volume now.  SPX closes below the 200 DMA.

That looks more like a possible volume climax low.  The bad thing was the TRIN was only 1.3.  The breadth was -77%.  New highs fell to 8.  New lows climbed to 513.  You have to back to the early 2016 low to find more new lows.  At 2:30 a massive sell program hit the market and sent the VIX over 28.  The buyers stepped in to rescue the market at that point.

Quite the spike down.  I see the -DI line has crossed below the ADX line.  When oversold like this that often means it is time for a bounce.

Nice oversold reading on the red count now.

This high volume sell off might lead to a bounce.  However, the weakness of the rally into the top suggests it won't be the off to the races variety of bounce.  I would think sellers would sell any bounce from here at some point.  Some volume climaxes are three days so be aware tomorrow could still be down.  It probably rests on the shoulders of some key financial stocks that are reporting earnings in the morning.   XLF was down almost 3% today so I guess investors must not be expecting those earnings to be great.  That could leave room for a positive surprise though.  Gold and bonds were both up strong indicating a flight to safety trade today.  Despite the low TRIN reading there must have been at least a little panic in the air today.  If tomorrow is down big again that would present a problem.  Big down Fridays after down weeks have preceded crash Mondays like 1929 and 1987.  However, they have also seen big gap up reversals on Monday.  Lets hope the market lets us avoid that conundrum and is up tomorrow.  Next week is option expiration and is usually good for a bounce.



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