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Monday, December 31, 2018

Daily update 12/31

The rally stays alive.

Friday's consolidation continued today.  Late in the day there was a pretty strong rally to close well.  Breadth was +69%.  New highs were 3.  New lows continue to drop and ended up at 51.  Breadth was quite strong and would seem to indicate there will be more upside to come.

The futures clearly show the current consolidation above the 20 SMA.  There is no sign the bounce is over yet.

The green line crossed above the red line.  That will sometimes bring out the sellers.  However, the market was so oversold at the low it seems likely we were sold out in the short term.  That will not preclude sellers from coming back at higher prices though.  I think they are likely to hold off until we get a short term overbought condition.

I mentioned several times in the blog that the market experienced periods of low volatility lasting a few years followed by years of high volatility.  The recent low volatility period lasted longer than past periods.  However, I think it is safe to say we have now changed over to the higher volatility regime.  I think we should expect this to last for several years.  I had to laugh when I heard somebody saying how the FED's QT was having no effect on the market.  Maybe a look at the monthly chart will be helpful.

Does that look like nothing happened in 2018 to you?  That looks an awful lot like a top to me.  We had years of low volatility and QE.  The QE ends and the volatility picked up considerably.  I realize that correlation does not necessarily mean causation.  However, in this case it does make sense.  Now that the ECB has stopped their QE program the global liquidity will decrease at a faster rate.  I am going to stick with the bear case and let others fight the FED.  I want to see clear signs the worst is over before declaring the end of the bear market.

The oversold bounce is consolidating the gain so far. There is plenty of room to continue higher to work off the extreme oversold condition.  It is up to the bears whether they still feel an urgency to sell or not.  Will they wait for higher prices before making their appearance again?  We will have to wait and see.

Happy New Year.  Make it a good one.


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