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Wednesday, November 7, 2018

Daily update 11/7

The polls were correct this time unlike 2016.  The democrats retook the house and the market celebrated with SPX gapping up and over the 200 DMA.  I hope that means polls will be more trustworthy in the future, but I don't really know.  The country needs reasonably accurate polls so political leaders can tell what the populace really thinks.  I bet Chinese president Xi had a big smile on his face today. 

The volume wasn't very big considering the size of the bar.  Sellers must have had their hands in their pockets today.  Breadth was +75%.  New highs expanded to 75.  New lows contracted to 50.

The futures ended with a blue bar so they are extended in price in the short term.  They are still below the 200 SMA.

The McClellan oscillator is over 200 for the first time since March 2016.  This kind of breadth thrust can signal initiation of a new leg up.  It can also mark short term tops.  I still have not figured out a way to tell the difference. 

SPX closed 20 points below the 50 DMA.  That can act like a magnet.  On the other hand, SPY crossed above the 280 level which according to the option data may provide significant resistance.  If SPY keeps going up from here then delta hedging could accelerate the move.  On the other hand, the option sellers might come out tomorrow and try to send the market lower.  The FED announcement is tomorrow and no changes are expected.  Since the FED started raising rates the market has generally acted positively in the weeks after a meeting without a hike.  I am not sure whether this is widely known or not. 

The day after an election is not a really reliable indicator of what is going to happen over the next few weeks.  I suspect today was helped a lot by people pulling off hedges and covering shorts because of the gap over the 200 DMA.  I can't say whether the selling in tech is completely over yet.  Was this initiation on the upside or are we near a short term top?  Most of the time a low like the one we just had needs to be retested.  However, the amount of time between the low and the retest can vary greatly.  On rare occasions the market can V bottom and keep going like it did in 2014.  With the FED raising rates and doing QT that seems unlikely.  I would think SPX would struggle to go much above the 50 DMA without a retest.  How this will play out is really tough to guess.  I guess I won't make a guess.


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