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Thursday, January 31, 2019

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.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.