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Friday, December 28, 2018

Daily update 12/28

Consolidation day to end the week.

SPX was up and down through the day.  There was an afternoon rally that made a new high, but then sellers took over into the close.  It is common to sell off into the close on the last trading day of the month.  Being as Monday is a half day the funds did their work today.  I don't think it means the end of the rally yet.  Breadth was actually +59%.  The selling was mostly in the big cap stocks.  The new highs were still low at 6.  New lows dropped way down to 91.  Overall volume was light which is good for a consolidation day.

The futures confirmed the break of the 20 SMA.  That is a slight positive. 

The red count is collapsing back towards 50.  The green count still has barely budged.  I would think these two lines would get pretty close together before sellers show up in force.

I guess the big boys will take a four day weekend so Monday is likely to be quiet.  So far the oversold bounce looks likely to continue.  I heard famed technical analyst Ralph Acampora on CNBC this afternoon.  He said this is just an oversold bounce so far and we usually see a lower low in this technical condition.  He thought his bounce might carry up towards the Oct. low around 2600.  That was the low SPX broke that started the cascade down.  That is definitely a possibility.  It would be what a friend of mine calls returning to the scene of the crime.  It might be a bumpy ride to get there though.  I would also expect a ton of overhead resistance at that point. 

I hear many people getting on TV lately saying how good the fundamentals are.  How the economy is nowhere near a recession.  Jim Cramer was imploring people this morning to just buy something.  I am reminded of watching ECRI's Achuthan on CNBC in April of 2008 telling everybody the U.S. was in recession.  You should have heard how they all ridiculed him.  That was because Q1 2008 GDP had just been reported at +3%.  The funny thing is many months later the NBER dated the recession start as Dec. 2007.  That Q1 2008 GDP was later revised negative.  We will be lucky if we know we are in a recession within 3-4 months of it starting.  The economy is in what ECRI calls a growth rate cycle slow down.  Until that passes and the economy starts a new growth cycle it is possible it slips into recession at some point.  Nobody knows whether we will or we won't.  All we can go by is what the market is telling us.  The markets are worried.  Worried for nothing or for good reason we do not know yet.  I suspect it is for good reason, but that is not why I am bearish.  I am bearish because we had a textbook top formed this year.  I commented many times how the summer rally showed weak breadth like it was the final move up.  The sell off since the end of Sept. has given us strong signals we are now in a bear market.  I see no reason to listen to the pundits tell us to buy now because things are wonderful.  There is a very good possibility we will see lower prices in the months ahead.  For nimble traders it is buy the dip and sell the rip.  The rips in a bear market can be quite large, but they are short lived.  Do not overstay.

Have a great weekend all.


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