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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.


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