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.


Bob