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Wednesday, October 3, 2018

Daily update 10/3 Excessive new lows with SPX near high and low cash levels at Schwab

Another failure by the bulls.

The market gapped up and SPX was well above the FED day high early on.  Breadth peaked out at +62%.  However, sellers came in and started hitting the bids again.  After 2 PM some heavier selling came in.  Breadth ended the data slightly negative.  New highs were 68.  New lows spiked up to 242.  Bonds sold off hard sending the 10 year to multi year highs.  That likely made a number of bond funds make new lows contributing to the spike up in lows. 

The futures are currently down about 6 points from the 4 PM close.  I don't have any idea why that is or whether they will still be down in the morning.  It is clear there is stiff resistance above the FED day high.  Whether it is insurmountable or not remains to be seen.

Both counts turned down a bit today.  The bears still have the edge at the moment.

Schwab data indicates their client cash level relative to assets has hit the all time record low set in Jan.  Back then the market was in very strong technical shape.  That certainly helped contain the pullback in Feb.  We don't have that same situation this time.

Interesting chart from John Hussman.

The excessive new lows with SPX near its high is a warning sign of at least a correction.  This time that condition is accompanied by record low retail investor cash levels at Schwab brokerage.  This seems like a textbook bull market top.  That does not mean the market is going to fall away immediately after the final high.  Sometimes the market messes around for months.  Back in 2000 SPX made its final high in March with a retest in late Aug.  The downside did not really get going though until 2001 when the market started sniffing out a recession.  I can't see any sign of a recession in the near future.  I would not be surprised to see similar action.  It is possible we simply reached the point where everybody is all in.  That assumes the market does not get antsy about a prolonged trade war with China.  If that happens then the downside risk would be considerably greater over the next several  months.

In the short term we await SPX breaking out of this narrow trading range and take it from there.


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