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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.


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