Daily update 1/31

Buying climax?

SPX almost made it up to the 100 SMA.  Breadth was +67%.  New highs shot up to 124.  New lows dropped to 4.  Lots of volume today.  That often is the sign of a buying climax when big volume comes this late in a rally.  Selling climaxes often come in a 3 day run like the Dec. low.  Buying climaxes can be a one day affair.  Sometimes they are two days with the second day a narrower range day, but with high volume.  I think we have bear capitulation at least. 

The futures have cleared all the moving averages.  This could just be an overshoot though.  They do that sometimes during sell offs in up trends.  We will have to wait and see if the 200 SMA becomes support if tested.

The green count almost reached overbought levels again.  The intermediate indicator is now very overbought.  The last time it was this high was last Jan.  Yeah, right before the big sell off.  Even with SPX at new highs the indicator getting this high usually ends up in a pullback or multi week consolidation.  Upside progress is tough to come by.  Below the 200 DMA it is usually followed by a sharp sell off.

This is a look at the intermediate indicator calculated on the stocks in the NYSE index instead of SPX.  This indicator dropped below 60 in 1990, 1999, 2008, and 2015.  The 2015 occurrence was the only one  not associated with a recession.  I believe the recession was held off by the ECB QE program and massive stimulus in China.  The FED was slowly raising rates, but was not doing QT yet.  Currently China is doing some stimulus, but not as much as late 2015.  The ECB has halted its QE program and the FED is doing QT.  That is a much different setup.  Global liquidity is being reduced this time.  This indicator is slightly lower then it was in 2015.  I believe this makes the risk of recession in the U.S. in the next year very high.  Especially with the market acting like a bear market.

This rally has picked up a lot of believers, but that can be a big problem when SPX is below the 200 DMA.  Japan and Germany could already be in recession.  China is having big problems as noted by many companies in their earnings reports.  Unless the global economy changes course it will be difficult for the U.S. to stay out of recession.  ECRI is saying their long lead indexes are still falling.  Until they turn back up recession risk remains elevated.  ECRI also says they don't see a U.S. recession imminent.  That outlook could change if the data continues to weaken though.  That is the dilemma.  While it does not appear that a recession is imminent there is still considerable risk of one in the months ahead.

SPX is just over 35 points from the 200 DMA.  It may get there, it may not.  We will have to see if the bulls want to keep on pushing or if today was a buying climax top.

Bob

Daily update 1/30

AAPL and BA earnings propelled the market early on.  The market also got what it wanted from the FED in the afternoon that sent prices higher.

SPX hit the upper channel line.  These channel lines often provide support and resistance on any time frame.  This is a place that could cause a pullback.  It is rare to cross the channel like this and just keep going.  The more common outcome is to pullback to the 50 SMA.  Then decide whether to go up again or break down and head lower.  Time to pay close attention.  Breadth was +77%.  New highs increased to 74.  New lows were stable at 15.

The futures popped up a few points above the prior rally high.  Is this a double top or the start of another leg up?

The green count recrossed 50.  The bulls showed up when they needed to.

The question is what happens now.  What happens on FED day is often retraced in the following days.  Even though the market got just what it wanted with good earnings and a FED acting like a dove SPX closed only six points above the 1/25 high.  If the market decides to retrace this news induced move the daily chart will look like a possible double top at upper channel line resistance.  A subsequent break of the 50 DMA could bring out significant selling pressure.  We will have to see whether people decide to sell or if they expect more good news to drive the market higher.

Cramer and others are always saying if we get a deal with China the market will soar 10%.  I heard a guy saying that a lot of the sell off was on worries about the Chinese economy.  I believe that to be correct.  Then he went on to say that the Trump position is that China is taking unfair advantage of the U.S.  I think that has been made pretty clear.  The next comment was that a trade deal would be detrimental to the Chinese economy.  I find that kind of hard argue with.  There is no win/win proposition on the table.  He expects a trade deal announcement to be a sell the news event.  I guess that might depend on where the market is by the time there is a deal (if there is a deal).  The last I heard the two sides were still far apart, but that can always change quickly.

Bob

Daily update 1/29

More consolidation.

SPX stuck its head above yesterday's high, but found a few sellers.  Breadth was +54%.  New highs were 51.  New lows dropped a bit to 17.  Both the industrials and the transports showed relative strength to SPX.  That might have been due to strength in MMM. 

The last two bars in the futures closed above the 200 SMA.  They are up from the 4 PM close I presume on AAPL earnings.  The question is will the market be able to make forward progress tomorrow on FED day.

The green count fell below 50.  The overbought condition has been worked off.  Since we are below the 200 DMA the bulls need to step in soon and give the market another shot in the arm or the risk of rolling over will increase dramatically.

Tomorrow is FED day and the market has a well documented drift higher going into a meeting.  That could have helped keep the market from tanking today despite some rather poor earnings news.  The FED is not likely to do anything tomorrow, but there could be a change in language that moves the market.  I feel like the market is reading Powell a little bit wrong.  I get the feeling many people think he folded to the will of the market.  What I keep hearing from him is that he is data dependent.  The economic data clearly shows the global economy slowing considerably.  The U.S. economy is showing some signs of slowing around the edges.  Based on the data a pause is truly warranted.  I don't think the move down in the market had anything to do with it.  Powell has said he does not care what the market does unless it becomes a systemic problem.  That is certainly not the case so far.. 

Bob

Daily update 1/28

We had a gap down on poor earnings, but not a lot of people were interested in selling into the weakness.

SPX is showing an island gap reversal at the moment.  Whether today's gap down gets filled or not remains to be seen.  Breadth was -54%.  New highs dipped to 39.  New lows were stable at 22.  SPX remains above the 50 SMA.

The futures dipped below the 20 SMA, but have not confirmed a break yet.  The 50 SMA is coming up fast.  That will either get broken or slap the futures up through the 200 SMA.

Both counts picked up today.  The green count remains above the red line.

I heard a very strange round table on CNBC today.  There was a discussion on the FED's balance sheet.  I detected considerable optimism that the FED would reduce the size of the balance sheet run off soon.  One participant even thought it might be at the Wednesday meeting.  I suspect this is predicated on the WSJ article I mentioned last week.  I did not read the article, but I am quite sure there would be no change in the balance sheet run off without a number of FED people giving speeches that they supported that.  Unless I totally misread Powell he is not going to be signaling policy moves to the WSJ.  I have heard no such talk so far.  I don't know if that is an expectation among money managers or not.  If so there could be some disappointment if the FED does not make a change.  This caught me totally off guard.  I do not understand why such an expectation would be present at all.  I guess we will see what happens.

Many of the companies that have missed earnings have been blaming China.  NVDA said there was a massive slow down in China for their business.  That could put pressure on China to make a deal.  It will also make the Trump administration more likely to go for the throat which certainly is not going to make a quick deal.  From what I hear there is serious desire to get the Chinese to stop stealing IP.  The U.S. team wants some way to verify that.  That would certainly take a lot of negotiation.  I sense some thinking that there will be a deal fairly soon.  I am not sure that is valid thinking.  I guess we will see what happens on that one also.

The market is still consolidating here.  It is trying to decide whether to keep going higher or turn back around.  Bears want to see a close below the 50 DMA.  Bulls want to see SPX take out its recent high and keep going.  This might not be settled until after the FED meeting concludes.

Bob

Daily 1/25

Good news sparked some buying, but resistance showed up in the afternoon.

SPX fell about three points short of the 1/18 high.  Breadth was strong once again at +74%.  New highs increased to 51.  New lows dropped way down to 4.  There is the potential of a short term double top. 

The futures are once again above the 200 SMA.  The question is will they be able to stay there this time.

The green count continues to fall, but remains above 50.  This could be a sign the market is getting exhausted.  When below the 200 DMA it is better if the green count drops during a pullback and picks up again on rallies. 

The rally today was predicated on two headlines.  One was that there would be a deal to open the government again.  That sort of came out late last night because my wife mentioned it before we went to bed.  This morning the WSJ said the FED was considering ending the QT program early.  I think this one was the most responsible for buyers showing up.  This headline is rather odd when you think about it.  The FED has never said when they would end QT.  Doesn't that make it hard for them to discuss ending it early?  Just saying.  I also believe Powell said something in the last press conference that it was not completely on autopilot.  If conditions warrant it they would stop.  The market did not sell off because they closed the government therefore that headline is not going to last long.  After the announcement was officially made this afternoon SPX even took a dive.  The other headline is actually nothing new and should not have a lasting affect either.  I can't say if today's strength will continue.

This rally continues to pick up believers.  A friend of mine mentioned that he saw a number of people that started out calling this a dead cat bounce are now starting to back off of that idea.  Sharp sell offs in a bull market scare people even without the indexes getting below their 200 DMAs.  The opposite happens in a bear market.  Even without the indexes reclaiming their 200s people become believers that the worst is over and they better climb on board.  The breadth on this rally is strong, but in a bear market that does not necessarily mean it is over.  During this rally the market has ignored continuing weak global economic data.  The global economy and therefore the U.S. economy is not out of the woods yet. 

I have no idea what will be the tripwire that starts the retest of the low.  I continue to think that will happen at some point.  The more people believe in this rally the more likely we do a full retest.  Bulls want to see skepticism not optimism at this point. 

Bob

Daily update 1/24

More consolidation.

Not much to say as it was an inside day.  Buyers and sellers both took turns.   Breadth was +64% as strength in the SOX and transports sparked some buying.  New highs picked up a bit to 35.  New lows came in at 21. 

The futures tried again to get above the 200 SMA, but failed.  The last three bars closed below the 20 SMA, but no confirmation of a break yet.

The green count continues to fall, but remains well above the red line.

After a sizable gap down and sell off the other day the market has been spinning its wheels.  There is clear resistance every time the futures get above the 200 SMA.  The dip buyers have come in on the sell offs.  The breadth was strong for such a mild up day in SPX.  The big caps held the market back today.  The broad market always ends up going where the big cap stocks go.  For the market to go higher the big caps need to pick up some bids and resume upward movement. 

In the early stages of this rally I heard a lot of people talking about a retest of the low.  That talk seems to have died down considerably.  I saw Bob Pisani saying that Lowry's research says the strength of the rally means a retest is unlikely.  They are usually pretty good from what I hear, but they may be wrong this time.  I don't believe we will just keep going up to new highs from here.  Some kind of retest is highly likely.  That does not mean we must make a new low in the process.  A retest can create a higher low.  It feels like this rally has picked up a lot of believers.  My past experience in bear markets indicates that with the position of the indexes below their 200 DMAs that can be a bad thing.  We will just have to wait and see how this plays out.

Bob

Daily update 1/23

Some sellers showed up on the gap up.

SPX tested below yesterday's low, but bounced back.  Volume dropped considerably.  There was a 41 point drop to the low from the early morning high.  The low volume indicates it did not take a lot of selling pressure to make that happen.  That is consistent with a bear market where buyers can get scarce at times.  Breadth was slightly negative.  New highs increased to 24.  New lows dropped a bit to 19. 

The futures closed just above the 20 SMA. They traded above the 200 SMA this morning, but were unable to stay there. 

The short term bull pressure lines show that internal strength peaked about two weeks ago.  The long term lines remain negative.  The market still has some work to do if the bulls want to get control back.

Sellers have emerged over the last two days.  So far there have been enough dip buyers to keep the market from breaking down.  The resistance here could be quite significant so there is no guarantee we won't run out of buyers before we run out of sellers.  The rally has not broke yet, but it is not clear that it won't in the next several days.  The bears need to see SPX close below the 50 DMA.

Bob

Daily update 1/22

This is the first time people sold into a gap down since the Dec. low.

SPX tested below the 50 SMA, but bounced strongly going into the close.  More on that later.  Breadth was -75%.  New highs were 16.  New lows picked up to 28.  More new lows then new highs already is not a good sign for bulls.

The futures dipped below the 20 SMA, but held for now.  They are right at that MA as I write this.  I mentioned on Friday the 200 SMA was likely to be a problem in the short term.  This is likely to be the start of a consolidation/pullback.

The green count finally fell out of overbought territory. 

The rest of the world was down overnight which caused a gap down in the U.S.  Sometime during the day there was a headline that some mid level Chinese trade negotiators cancelled a trip to the U.S.  That brought out significantly more selling.  In the last hour Kudlow was on CNBC saying there was never any meeting scheduled so there was no cancellation.  Fake news!  That caused a screaming rally into the close.  This is the kind of day that can end a bear market rally.  We will have to pay close attention now and see how the price action unfolds.  If the bulls come out in force tomorrow they can still salvage the rally.  A close back below the 50 DMA could be trouble though. 

Bob

Daily update 1/18

More trade headlines, more up.  I have not heard a headline yet that sounded real.  I guess we will see.

That is some V bottom.  It is another 70 points to the 200 SMA.

The futures shot up through the 200 SMA.  Overshoots of that MA are not uncommon, but the market usually ends up pulling back soon after. 

This is an unusually long time for the green count to remain overbought.  The last time we had that long a streak was after the Oct. 2014 V bottom.  Once the green count fell out of overbought the market consolidated for nearly two months.  In that instance SPX was at new highs.  This situation is different.

There is not much to say.  The market keeps getting some positive headlines to grab on to for buying some stocks.  More and more people are becoming convinced the worst is over.  Many still expect a retest though.  One problem with being driven by the trade headlines is that none of that stuff is real.  It is all talk and no substance.  Meanwhile the government shutdown continues.  We are well past the longest shutdown in history.  The longer it goes on the more impact it will have on the economy.  The market has ignored that so far because past shutdowns did not cause serious economic disturbance.  It appears to me both sides are dug in and have strong support from their political bases.  Exactly what will change that?  I don't see either side just giving in out of the blue.  Something will have to happen to cause a resolution.  That could end up being the market tanking again if people decide the economy is truly being impacted. 

This is for those that are going to get walloped this weekend.

Have a great weekend.

Bob

Daily update 1/17 The bullish take and the bearish take

Another gap down and another round of dip buyers snapping up the bargains.

Thanks to an afternoon headline that the U.S. might consider lowering tariffs on China SPX closed above the 50 SMA.  From the article I saw I believe this to be a bogus headline, but we will see.  Breadth was +67%.  New highs were 19.  New lows came in at 12.  Nothing telling in the internals.

The futures made it up to the 200 EMA.  It is still another 20 points to the 200 SMA.  If we get that far it is highly likely to be very strong resistance.

We keep having downside gaps, but so far sellers have not been interested in selling into weakness.  There have been a few intraday spikes down, but no sustained selling.  The other night I talked about the equal and opposite reaction going on in the market. The last flush started on 12/14.  The high that day was 2635.  That was today's close after the market gave up 10 points of the headline surge.  The flush is completely retraced now.  Between that and closing above the 50 DMA there is likely to be some selling soon.  There is also the bigger picture resistance from the top SPX broke down from in Dec.  We have now returned to the scene of the crime and there may be more investors interested in getting out now that they are back to even.  The odds of a retest of the low are extremely high and this seems like a good place for the rally to fizzle out.  Time to start watching for a roll over.

Interesting couple of articles looking at the market action and getting completely different ideas of what is going on.  I suggest reading both.

Bull take
Bear take

Bob

Daily update 1/16

Today's up was largely due to financial earnings as XLF was +2.2%.  Most of the rest of the market showed little enthusiasm.

SPX is slowly closing in on its falling 50 DMA.  The MA will probably be close to today's high tomorrow.  The breadth was +60%.  New highs increased a bit to 21.  New lows dropped to 8.  Not much information in the internals.

The futures shot to the upside after the open.  After 30 minutes of buying there was enough selling to take them down to a new low.  The buyers stepped in again though.  The afternoon saw some buying and selling.  Neither side being aggressive.

The green count slipped some more, but remains slightly overbought.

Financial earnings drove the buying today, but what will tomorrow bring?  What happens with SPX in the vicinity of the 50 DMA?  Heck if I know.  Right now the market is focusing on any positive it can find to keep the rally alive.  However, that could change any day now that the market has retraced most of Dec.'s mini crash.  Be nimble or be in cash.

Sorry to be so late the last two nights.  My sister was in town for a visit.  Back on a more regular schedule now.

Bob

Daily udpate 1/15

Upside resolution to the consolidation.

The futures were not down for a change and buyers showed up to push SPX higher.  Breadth was +60%.  New highs and lows were both 13.  SPX is just 20 points away from the 50 SMA.  That could act as a magnet from here.

The futures confirmed a break of the 100 SMA.  The oversold bounce continues for now.

The green count remains overbought, but so far that has not stopped the rally.

This looks like the physics law of equal and opposite reaction.  The last break down occurred on 12/14.  The high that day was 2635.  That would be just above the 50 DMA.  I suspect that area will be the ultimate target area for this rally.  That would bring SPX up into the lower part of the overhead resistance.  So far the sellers are sitting on their hands. That could change suddenly at some point.

The breadth has been very good.  The volume ratio of up to down volume is also good.  This has caused many pundits to pronounce the bear market is over.  I am sticking with the bear market call for now.  The market will have to prove the worst is over.  The trouble is stemming form overseas and the global data is getting worse not better.  I believe people are piling in here because the U.S. economy still looks good.  However, there are signs the U.S. is weakening also.  Strong breadth rallies do not always end bear markets.  There will be some kind of retest eventually.  That may end up being a successful retest and off to the races, but it could also be lower lows yet to come.  A little patience to let the market sort things out is needed.

Bob

Daily update 1/14 SPY option data

A third gap down in a row and a third day the dip buyers showed up and kept SPY above the open at the close.

The dip buyers were not strong enough to close SPX green.  Breadth was -63%.  New highs slipped a bit to 11.  New lows picked up a bit to 23.  Resistance continues to hold.

The futures continued the consolidation below the 100 SMA today.  After hours they have popped above that MA.  I don't know if they will still be there in the morning.  There is clear resistance in this area.  However, there has not been much interest in selling into weakness.  Until that changes the market isn't going to head south very far.  On the other hand, it is difficult to say whether the market will be able to push through this resistance area.

The green count has dropped slightly, but remains overbought.

There is no option related resistance in sight.  The number of calls is rather low this month.  The 250 level is the only real option support.

The market continues to consolidate.  I don't believe the current resistance is option related.  It remains to be seen whether this is a pause to go higher or a short term top.  This week's earnings reports could provide the resolution one way or the other.

Bob

Daily update 1/11

SPX has struggled to go up since the VIX dropped below 20.

The market had another small gap down and the dip buyers came swooping in again.  However, they did not push SPX above yesterday's high.  Breadth was weaker, but still positive at +53%.  New highs were 17.  New lows came in at 5.

The futures continue to consolidate at the 100 SMA.

The dip buyers showed up again this morning, but they were not as enthusiastic as yesterday.  I don't think the fact the market has struggled since the VIX dropped below 20 is just a coincidence.  We also have a short term overbought condition as well.  I can understand the hesitancy on the part of the buyers here.  The question in a bear market is can the market consolidate to go higher without rolling over.  That remains to be seen. 

I saw Paul Hickey from Bespoke on TV today.  He said that companies that have announced earnings since the Dec. low were down on average 2% the first trading day after their announcement.  Apparently the market flying up is not helping those that have announced.  That begs the question what happens when earnings season gets started in earnest next week.  What companies say about the future will be very important.  The next few weeks will likely be volatile.

Have a great weekend.

Bob

Daily update 1/10

Several FED speakers talking about a pause in the rate hike campaign spurred some more buying.

SPX closed 1 point above yesterdays high.  I can't say that is enough to indicate we have cleared the resistance that has been visible in the intraday action.  Breadth was +59%.  New highs were 13.  New lows dropped down to 6.

The futures bumped into the 100 SMA again at the end of the day.  They are down a few points as I write this.

The green count is super overbought now. 

There was some poor earnings news today that seemed to be ignored by the broad market.  I believe that was because of all the FED speakers in the last few days making it clear they are pausing.  The question is whether that has all been discounted yet or not.  I think it is very near if not done.  My tick indicator I use intraday was showing a hint of distribution today for the first time since the Dec. low.  One indication the rally may be running out of steam.  We will have to see what happens tomorrow.  A close below today's low in the days ahead could bring out some sellers.

As I suspected some people are jumping on the strong breadth as an indication there is nothing to worry about.  Even if the market retests the low everything will be all right they say.  I can understand that.  I had a lot of problems with the strong breadth data in the 2000-02 bear market.  I got confused a number of times as to what was going on.  I am not going to let that happen again.  We are in a confirmed bear market.  Breadth works differently now.  Rallies on strong breadth are good for shorting when they roll over.  Let others be confused and over stay their long trades.  Be nimble or be out of the market.  Buy the dip, sell the rip and don't be the last long to get out.  This bear is not going to end until sometime after the majority of investors realize it is a bear market.  There are very few in the bear market camp at this time.

Bob

Daily update 1/9

A little more up, but we are getting into the bigger potential resistance area.

The market gapped higher as the rest of the world was positive overnight.  Shortly after the open the sellers came out once again.  The dip buyers came to the rescue on more FED comments about a pause in rate hikes.  However, the sellers came out again at times in the afternoon, but not too much selling pressure.  More like hitting the bids and easing off when the market started to go down.  Breadth was +65%.  New highs were 11.  New lows were 10.  Calm in the new highs and lows data.

The futures just touched the 100 SMA when the afternoon sellers started to work.  This also corresponds with the intraday 60 minute 200 SMA.  Some resistance here on top of the overall topping pattern resistance in SPX.  The futures are down a few points in after hours trading.  Hard to say where they will be in the morning.

The McClellan oscillator is in an extreme overbought condition.  Some technicians will think this is initiation of a new leg up.  The problem is bear markets usually have very strong breadth on the bounces as people rush in to buy what they think is the bottom.  I believe this will prove to be a bear market bounce as the VIX closed below 20 today and SPX is still well below the 200 DMA.  In higher volatility regimes the VIX stays predominantly above 20 and dips below that level often prove to be good sell signals.  It is now time to watch close as the market might roll over here.  I suspect there is considerable overhead resistance from the Dec. break down.  If the market starts down again don't be surprised if it does so sharply.  The sellers may come out of the woodwork again. 

Bob

Daily update 1/8

A little more up.

SPX gapped higher, but proceeded to pullback a bit shortly after the open.  However,dip buyers came to the rescue and held the market up the rest of the day.  The early morning high was not exceeded though.  Breadth was +78%.  New highs were 14.  New lows were 10. 

The futures are approaching the 100 SMA.  So far the bounce continues.

The green count became a bit more overbought. 

SPX has had little bouts of selling, but nothing too extreme yet.  How much more juice remains?  Hard to say.  Earnings season is coming right up.  It will be interesting to see what the companies have to say about the future.  That could determine what happens next.

Bob