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Monday, October 8, 2018

Daily update 10/8 A disconnect between the Dow and the broader market could spell trouble for stocks

Buying and selling again today.

The market gapped down a few points and the dip buyers came out right away.  After getting SPX positive sellers came in and took it below Friday's low.  After pausing mid day the bulls put on a pretty good rally in the afternoon.  SPX was positive until the last 15 minutes of the day.  Breadth was dead even.  New highs came in at 31 while new lows dropped to 323.  That is still a lot of new lows and the bond market was closed today so that was likely mostly stocks.  The bulls are clearly defending the Jan. high and the 50 SMA. 

The futures dipped down to the 200 SMA and found support.  This is a logical place to bounce when oversold.

The red count turned down a bit, but remains above 50.  The intermediate indicator is getting awful close to the key 50 level.  Crossing below 50 generally causes more prolonged corrective activity rather than a quick pullback.

SPX shows 3 consecutive bars with long lower tails.  That is really rare.  With SPX closing above the open the odds of an oversold bounce seem pretty good.  TRIN was low once again.  We do not have the usual sign of a bottom.  No close near the low and/or high TRIN reading.  No high volume on a down day either.  The market is clearly rotating out of small caps and big cap tech.  Utilities were strong.  This rotation appears to be a defensive move which makes me think this is not just a short term pullback.  As I said before I can't recall ever seeing the market act like this.  I have no idea how this is going to play out.  I am guessing we bounce tomorrow off of support here and the slight short term oversold condition.  Beyond that remains to be seen.

Another interesting look at the breadth divergence we are seeing.  A disconnect between the Dow and the broader market could spell trouble for stocks


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