Daily update 2/28

The bulls and bears are still fighting it out.

There was only an eleven point range today.  That seems extremely narrow without being at a new high.  Breadth was -55%.  Volume increased considerably indicating today was a distribution day.  New highs were 120.  New lows slipped back to 13.  Today is the first red bar SPX has had all year.  That is pretty amazing in itself. 

The futures ended the day just below the 20 SMA.  Will they confirm a break this time or will the dip buyers rush in again?

The red count crossed slightly above the green line.  That is the first time on this rally.  Sometimes that will be enough to bring out the buyers and cause what I call a bounce cross.  I don't know if that will happen this time though.  The pullback so far is miniscule and the market is still very extended above the 50 DMA. 

Internals are weakening without much price damage.  That often means further upside is in store.  However, it is rare to be this overbought without being at new highs.  When the market is really overbought at a lower higher bad things sometimes happen.  In this case the 50 and 100 DMAs are both below the 200.  What I know for sure is that we have clear resistance as intraday bounces are getting sold into.  What I don't know is if that resistance is insurmountable or not.  That probably depends on whether the market starts paying attention to the bad economic data again or not.  Stay tuned.

Bob

Daily update 2/27

Dip buyers to the rescue.

The market started with a little bit of a gap down, but the buy the dip crowd showed up.  There was a little selling to a lower low caused by some comments out of D.C. mid morning, but the buyers showed up again.  Breadth was dead even.  New highs were up a bit to 94.  New lows were up quite a bit to 20.

The futures tested below the 20 SMA, but bounced back.  Until we get a confirmed break of that MA the bears do not have anything to talk about.

The red count is rising a bit, but is still below the green line.  It is the highest it has been on this rally though. 

Sell programs hit the market once in a while, but there is no real concerted effort on the part of the sellers.  Until something changes I will have a hard time finding things to write about.

Bob

Daily update 2/26 Q1 2019 earnings expectations turned negative

Bulls and bears both active today.

There was a little more selling today than it might have looked.  Breadth was -57%.  New highs dropped way down to 75.  New lows were stable at 10.  Today keeps the possibility of yesterday being a short term top alive.

The futures are still hanging above the 20 SMA. 

The green count dropped below 50, but remains above the red line.  The last two times the green count dropped below 50 the buyers showed up.  Not sure that will happen this time though.

There were some dip buyers and rally sellers today.  The last two days there was some selling into the close which has been very rare on this rally.  There appears to be significant resistance here.  We will have to wait and see if that unleashes any significant selling pressure.

I read that SPX short interest is the lowest it has been since 2007.  That suggests the fuel from short covering is probably exhausted.  High short interest tends to cushion down moves as the shorts provide some buying when they cover.  Many bottoms are actually made when a large number of shorts take profits.  With SPX at a lower high I think this stat is a bad thing.

Interesting chart on earnings expectations.

Estimates for SPX fell 5.7% since the end of last year and are now negative.  Fundamentals are not looking very good at the moment.

Bob

Daily update 2/25

Selling point hit?

Over the weekend Trump tweeted that he would not raise the tariffs on March 1. That was no surprise given what happened last week.  That caused a huge jump in the Chinese stock market, but only a modest gap up in the U.S.  SPX got within 3 points of its Oct. high before the sellers took charge the rest of the day.  Breadth was slightly negative after being +68% in the morning.  New highs dipped to 147.  New lows were up a tad to 10.  Volume was up a bit with SPX closing well below its open.  That would classify it as a distribution day. 

The futures pushed higher overnight, but ran into the stiffest resistance we have seen on this entire rally as the selling lasted into the close. 

The green count remains above 50.  The intermediate indicator is amazingly overbought.  Rallies to lower highs rarely get this indicator up this high. 

As mentioned a few times the market is crazy overbought.  SPX may have finally hit the point that will bring out some sellers. 

All the good news is pretty much out now I think.  The FED is on hold with rate hikes.  They are even talking about winding down QT before year end.  It appears the U.S. and China will come to a trade agreement.  What good news is left?  On the other hand, all the bad economic news the market has been ignoring is still out there.  I do not see anything yet that indicates a turn around in the global economy.  The global slowdown appears to be starting to drag the U.S. down with it.  The outlook for the U.S. economy is way worse than it was at the Dec. low.  The unemployment rate is up to 4.0% from 3.7%.  A rise of .50% from a low point has always been followed by a recession in the last 70 years regardless of the starting point.  That means a rise to 4.2% in the coming months would mean extremely high odds a recession is imminent.  Will people be willing to just keep piling into stocks with that risk hanging out there?  Maybe, but is it likely.

Bob

Daily update 2/22

More positive trade talk, more up.

SPX closed 4 points above the prior intraday high.  Breadth was +71%.  New highs expanded to 164 for a new rally high.  We are in the area of the Nov. and Dec. highs.  To be resistance or not to be resistance.

The futures ended the day three points below the 2/21 overnight high.  Not breaking new ground despite the good trade talk may indicate a positive resolution is nearly priced in.

Both the U.S. and China say the odds of a deal being made are better than not.  That suggests Trump will probably not raise tariffs on March 1.  The only thing I have heard they agree on is that China will not use its currency to affect trade.  That is nothing new.  They have been saying that since day one.  There is talk of China buying more agriculture goods over 10 years.  I don't think that is a big deal to the U.S. team.  They are more into the stealing of intellectual property and forced information transfers.  Of course those are likely to be very sticky issues.

The market is clearly focused on trade.  I heard Bob Pisani say something to the affect he did not want to say the economic data is abysmal, but it is really bad. Yes, it is Bob.  The question is how long before the market refocuses from trade to the poor data.  There is currently nothing in the leading indicators to suggest a restrengthening.  The data may continue to get worse.

SPX is extremely far above its 50 DMA with possible resistance right here.  How is that combination going to work out?  Beats me.

Have a great weekend.

Bob

Daily 2/21

Bad economic data slightly overpowered positive trade talk.

There was a last hour rally to lift SPX off the lows of the day.  Breadth was -59%.  New highs dropped way down to 88.  New lows remained low at 8.  The dip buyers were still active today, but the sellers were busy selling into strength.

The 20 SMA held as support.  The futures have not had a confirmed break of that MA this entire rally.  That is an unusually long time without the market being at new highs.  It will be interesting to see what happens once we get a break.

The green count slipped out of overbought again.  It remains well above 50.

Today's economic data was weaker than expected.  The Philly FED manufacturing index was even negative.  The conference board's LEI has been flat since Sept.  That is not encouraging for a turn up in activity in the next few months.  The last rate hike from the FED has months to go before working through the economy.  I heard some comments from ECRI saying there is no turn up in their Chinese long lead indicators yet.  The Eurozone is still slowing.  Japan may be in recession.  That is the reality.  The market has been living in fantasy land hoping everything works out just fine.  We don't know whether that will be the case yet.

SPX has stopped here at resistance, but it has not turned around yet.  Dip buyers keep showing up on weakness.  Until the sellers overpower the dip buyers there is not much to talk about.

There is a lot of happy talk on trade talks with China in the media.  I can't really get a read on what is going on.  I think there are opposing camps inside the administration on exactly how hard to push things.  It is not at all clear whether the March 1 deadline is really a deadline or not.  Will tariffs be raised or not.  I think a positive resolution has been the biggest driver of this rally and is probably largely priced in.  Obviously if tariffs end up being increased the market is not going to like that.  If negotiations blow up the market is not going to like that.  How long is it going to take to get resolved?  Nobody knows. 

Bob

Daily update 2/20

The market has consolidated since mid day yesterday.

There was some bouts of selling today when SPX got up near yesterday's high.  The dip buyers rushed in to pick up the pieces though.  However, this does indicate at least a little bit of resistance in this area.  Breadth was +58%.  New highs dipped to 101.  New lows remained low at 7. 

The futures show the consolidation at the highs.

The long term bull pressure lines are not showing much strength at .5388%.  Check out the rally off the Feb. 2016 low.

The yellow arrow marks the same number of days off the low.  By this time the long term green line had been as high .6064%.  That is a long way from where we are on the current rally.  These lines take into account both breadth AND volume.  The market has not given us an all clear sign yet.

While SPX has run into some resistance here we don't know how strong it is.  There really is not much else to say.  We need to let the bulls and bears sort it out here for a bit.

Bob

Daily udpate 2/19

Resistance area touched.

SPX stuck its head above the 12/4 big down day high.  It actually stayed up there for a little while, but sold off going into the close.  The breadth was +61%.  New highs expanded to 123 (close to Jan. 31 count).  New lows came in at 10. 

Despite the slight new high today the futures look like they are consolidating. 

The market remains short term overbought.  It is now getting into an area of possible resistance.  There has been no selling pressure on this rally since Jan. 3.  The question is what happens when the rally finally stops.  How much profit taking will there be?  Bad economic news has been ignored, but it hasn't gone away.  Breadth has been extremely strong.  Many analysts are quick to point that out.  The all company advance/decline line has made a new high.  There will be lots of people expecting the broad market to follow that to new highs as well.  They will be quick to point out that this has never happened in a bear market before.  One problem with the market is that nothing is 100 percent.  The FED has never done QT before.  History is often a great guide, but there is no comparable history to our current situation.  What bothers me the most is the way the global economy is acting.  I believe there is way too much downside risk to say the worst is over.  

My take on the breadth is this.  I believe we had the narrowest bull market top in history.  Now some money is coming out of FAANG and the few other big winners and is spreading out to the stocks that were left behind.  I saw this happen in 2000, but it was less pronounced because as narrow as that top was it was much broader than this one.  Let  me tell you the breadth confused the heck out of me back then.  I am not going to let it do that again.  I am looking for other confirming signs the worst is over and I am not seeing anything yet.  I want to see what happens when the market corrects this rally and go from there.

Bob

Daily update 2/15

More positive comments on a trade deal and more up. 

SPX made some more headway today.  It looks like it might retrace the entire down move from the Dec. high.  It is about another 15 points up to the Dec. high close.  Breadth was +76%.  New highs rose to 109 (still below the Jan. peak, but getting closer).  New lows dropped down to 2.  There could be considerable profit taking when SPX finally rolls over because of the magnitude of the uncorrected move up.

Quite the run up.  Nothing significant to say about this chart until the market does something "wrong".

The green count shot up to overbought again.  So far on this rally that has not meant much.

Bad news is being ignored while positive trade news is being bought.  This makes it likely if an actual trade deal is reached it will be a sell the news event.  The people doing the negotiating keep saying the sides are far apart.  I don't have a clue how that all works out. 

In the mean time the bulls are running with ball.  Until they give it up there is really not much to say.  I have experienced periods where the market seemed to be ignoring fundamental news before.  There always seems to be a day of reckoning.  The trouble is there is no way to know ahead of time when that day will come. 

I am watching ECRI for a turn up in their long lead indexes.  Here is an interesting chart from them.

Their GLMI is their Global Leading Manufacturing Index.  It peaked a little before their IPI which is the Industrial Price Index (based on commodity prices).  Both of those peaked well before the global manufacturing PMIs.  Notice there is still no turn up in the leading index.  The global economic data will not get better until sometime after the leading index turns up.  Something could happen again at any time that reminds the market there are still fundamental issues out there.

Have a great long weekend.

Bob

Daily update 2/14

Investors got an unhappy retail sales report for Valentines day.

SPX opened below the 200 this morning, but dip buyers came to the rescue.  The buyers pushed SPX into the green, but ran into some resistance.  SPX traded sideways all afternoon, but sold off a bit going into the close like yesterday.  Breadth was slightly negative.  New highs dropped to 71.  New lows were stable at 8. 

The futures don't tell us much other than there is resistance up near today's high.

The bull pressure chart shows the short term lines getting close together.  The long term lines have gotten positive, but are not showing much strength yet. 

The short term market internals are still positive.  However, they are getting a little droopy.  I don't know if the market was truly worried about the poor economic data or not.  There were plenty of opinions coming out.  Some were like the data was no big deal while others said it was awful and we are all doomed.  I don't have an opinion on that yet.  I will wait and see what happens over the next two months.  I can see some softening in the U.S. in other data series though.  Nothing conclusive that a recession is imminent here.  Europe and Japan are different stories.  The risk of recession is high there.  They both could be in recession now especially if current data ends up getting revised lower.  In my mind risk in the U.S. exists until those major economies turn back up.  There is no sign of that happening yet.

I hear more and more optimistic tones from analysts.  The calls for a retest of the low are getting few and far between.  Given the technical condition of the market I think that is a bad sign.  That is exactly what bear market rallies do.  They make people think the worst is over then pull the rug out.  We do not have an all clear sign and the risk of at least a retest of the low is high.

Bob

Daily update 2/13

News that Chinese president Xi might meet with U.S. trade representatives this week while they are in China sparked a gap up.  I don't know if the market is getting a little too excited over nothing or not.  I would point out Trump met with the top Chinese trade negotiator while he was here recently.  CNBC has a reporter on this and she keeps saying people are saying the sides are still far apart.  Trump said he might move the March 1 deadline if things are going well.  The trouble is I can't tell if things are going well or not.  At least they are still talking.

After the gap up on overnight news there was very little buying energy today.  There was some selling energy mid day and again at the close.  That could indicate a short term top may be in the works.  Breadth was +61%.  New highs came in at 89.  New lows were really low at 5. 

The futures show a possible short term double top.  We will just have to wait and see if it comes to pass or not.

The green count drooped a bit, but remains above 50.

The close above the 200 DMA yesterday by SPX did not seem to generate buying enthusiasm today.  That would be normal for this kind of chart pattern.  There should be some selling now.  So we wait and see if it develops. 

Global economic news.

• South Korea's Unemployment Rate spiked to 4.4% in January from 3.8% in December, hitting its highest January level since 2000. Jobs in the manufacturing sector fell by 170,000 year-over-year.
• Deputy Prime Minister and Finance Minister Hong Nam-ki said the job market is in a grave situation
• Eurozone December Industrial Production -0.9% month-over-month (expected -0.4%; last -1.7%); -4.2% year-over-year (expected -3.2%; last -3.0%)

I am not kidding when I say the global economy is doing poorly.  Just take a look at the bullets from South Korea and the Eurozone.  In the U.S, a big spike up in the unemployment rate like SK saw would indicate a recession.  Industrial production is a good indicator of what the economy is doing and so the Eurozone is doing very poorly.  Recession risk is very high there.

I find it curious that Japan and Europe are looking so weak.  They also happen to both have negative rates.  What are their central banks going to do when they fall into recession (I mean besides panic)?

Bob

Daily update 2/12 Could 1Q19 Bring Negative Earnings?

Celebrate!  SPX closed above the 200 DMA.

Not to rain on your parade, but the last three times SPX closed above the 200 SMA it turned around and went back below.  Breadth was +72%.  New highs were 93 which was lower than the 124 we saw back at the end of Jan.  This is the last target for this rally.

The futures tacked on 12 points from the previous rally high.  The question is whether they can hold on to those gains.

The green count climbed back above 50, but is below overbought levels.  There is more room to run if the bulls desire.  There the chance this chart is showing a triple negative divergence with the prior price peaks.  That will be important if the market rolls over soon.

News overnight of an agreement on the budget in DC sent the futures higher.  During the day there was talk about moving out the March 1 deadline with China if negotiations are going well.  Both of those news events were enough to propel SPX above the 200 DMA.  After a big sell off well below the 200 like we had in Dec. the first test of the 200 almost always is met with selling.  I see no reason it will be different this time.  It will be interesting to see how the retest of the low unfolds.

I have seen a number of articles proclaiming the strong breadth readings we have had on this rally mean the Dec. low is the bottom.  Maybe, but maybe not.  This is the third year of the presidential term and it was widely broadcast that those years usually see a 20% or more gain.  I think that is why the breadth has been so strong.  Historically the market has not sold off like last Dec. since 1931.  None of those cases that everybody is pointing out that indicate the bottom is in did not have a bottom in Dec.  Keep that in mind.  This time it may work out differently.  People are rushing in because the U.S. economy is still going fine.  The problem is global weakness though.  There is trouble in Europe, Japan, and China all at the same time.  The U.S. is a little ragged around the edges.  The risks of a global recession are the highest since 2008-9.  The global economy is so tied together the U.S. will not be able to stay strong if there is a global recession going on.

Due to the obvious and serious risks I will wait until I see a clear technical sign the worst is over before suggesting the market has bottomed.  I do not have that at this time.

Interesting article on earnings expectations.  No Quarter: Could 1Q19 Bring Negative Earnings?

Bob

Daily update 2/11

Unenthusiastic bounce attempt.

The market gapped up a bit, but found its high very early.  The rest of the day was very choppy.  Big caps lagged while small caps showed considerable relative strength.  Breadth was +62%.  New highs expanded a bit to 84.  New lows came in at 11.

The futures tested above the 20 SMA, but failed to stay there.  The lack of follow through from Friday's bullish engulfing candle is a missed opportunity by the bulls. 

The green count remains above 50.  The bulls could use to show a little enthusiasm or risk the market rolling.

Big cap stocks lagged today on trade and global economic worries.  There was some rotation into small caps.  It might be tough to get SPX above the 200 DMA unless the bulls get some good news.  Apparently the FED news has run out of stimulus.

It is option expiration week.  I looked at the data, but I did not see any significant support or resistance levels.  I can't remember that ever happening in the time I have been showing that chart on the blog.  That makes me wonder if the option selling activity has diminished because of the higher volatility.  Usually there are a lot of puts under the market, but that is not the case now.  That would seem to indicate there is some nervousness about selling puts at the moment.

I have no idea what happens over the next few days.  News out of DC did not sound good for resolving issues before the Feb. 15 deadline.  Will there be another shutdown?  I keep hearing the sides in the trade negotiations with China are still far apart which is as I expected.  What happens when March 1 rolls around?  The latest global economic data is really weak.  What are the odds that turns around?  It seems like there is enough things to worry about to keep the upside in check.  We will have to watch for a sell catalyst that moves people to take profits from this rally.

Bob

Daily update 2/8

Dip buyers save the day.

The market gapped down again and tested a bit below yesterday's low.  However, dip buyers came in to hold the market up.   There were several tests, but no break down.  In the afternoon the buyers made some headway and SPX was positive at the close.  Breadth was slightly negative.  New highs were stable at 64.  New lows were down a tad to 19. 

The futures ended the day with a bullish engulfing bar.  I would not be surprised to see a bounce back to close yesterday's gap down. 

The green count dropped below 50, but remains above the red line.  The bulls are still in control.

There was quite a bit of back and forth at the lows today.  The buyers were definitely there and absorbed the sellers.  I would think that would lead to a bounce on Monday.  I don't know if we are going to new highs or not.  The bulls might be intending to pushing SPX above the 200 DMA and see if that sucks people in.   The market is overbought and optimistic while below the 200 DMA, but the sellers have not come out enough to turn the market around.  All this is going on while any day a headline can cause complete mayhem.  Be nimble or on the sidelines.

I think I finally figured out why the ECB stopped their QE program.  They were starting to get worried the Eurozone might fall into recession.   Since they already have negative interest rates the toolbox for fighting recessions would be empty if they kept QE going.  This way they can restart QE if/when things get bad enough.  I believe the ECB has good grounds to worry.

Bob

Daily update 2/7 Oops: Low Interest Rates a “Factor” in Slowdown of Economic & Productivity Growth: NBER

Poor economic data reminded the market of the global slow down.

• Japan's December Leading Index -1.2% month-over-month (last -0.7%) and Coincident Indicator -0.6% month-over-month (last -1.7%)

• Expectations for growth in Germany were reduced to 1.1% from 1.8% while the eurozone growth forecast was lowered to 1.3% from 1.9%.

It looks like Japan, Germany, and France are either in recession or very close.  Italy and Spain are showing considerable economic weakness.  China has the slowest growth in over three decades.  India's central bank did a surprise rate cut (I presume because of economic weakness).

The volume increased quite a bit on today's down move.  Breadth was -67%.  New highs were stable at 59.  New lows picked up to 23. 

The green count fell considerably, but is still above 50.

As long as this rally has gone on this could be the start of some profit taking.  The bears need to see a close below today's low for a bit of confirmation though.  The bulls may not give up just yet.  Bear market rallies sometimes create slow roll over tops.  They suck in everybody before pulling the rug out.  There may be some more ups and downs before the final plunge to retest the low.  On the other hand, since SPX got within a few points of the 200 DMA the sellers may be ready to unload.  The news flow could determine the outcome.  That is hard to handicap ahead of time.  Be nimble and quick here. 

It is about time somebody spoke with a voice of reason.  Way to go NBER.   Oops: Low Interest Rates a “Factor” in Slowdown of Economic & Productivity Growth: NBER

Bob

Daily update 2/6

Doji day.

Both bulls and bears took their shots today.  At the end of the day SPX ended up right where it started.  Breadth was -57%.  New highs contracted to 62.  New lows doubled to 9.  SPX remains just below the all important 200 SMA. 

The futures are down a few points after hours.  They are still above the upper channel line, but they could come back in easily.

The market has been consolidating since yesterday's gap up.  It is not uncommon to consolidate near an important MA.  The question is whether this consolidation is going to lead to an upside break out or a reversal.  I don't know.

For many months I have heard nothing but money managers and traders on CNBC saying they expect cooler heads will prevail and trade issues with China will be resolved before too long.  I have mentioned a few times the issues are not simple and I don't think we should expect a resolution soon.  I heard three different people today saying pretty much the same thing.  None of them expected a quick resolution.  I don't know what happens as we get closer to the March 1 deadline, but a trade deal seems the least likely outcome to me.  Trump could threaten to raise the tariffs as planned.  The market would not like that.  He might put the raise on hold if negotiations are going well.  The market would probably like that.

There is still uncertainty related to the global economy.  Since the start of the year the market has ignored all of it.  However, I can't help but remember how last year started out.  Hot Jan. and cold Feb.  I am starting to hear people talk about the market making new highs this year.  The pessimism from Dec. has melted away.  I see the global economy as the real threat to the market.  Until things improve globally downside risk remains. 

Bob

Daily update 2/5

Almost there!

SPX closed four points below the 200 SMA.  Volume was light again.  There was a bit of selling mid day, but dip buyers rushed in to snap up the bargains.  Breadth was +60%.  New highs picked up a bit to 98.  New lows remained low.

The futures remain above the upper channel line.  Creeping higher.

The market is ignoring any bad news.  Don't mistake that for a lack of bad news.  The global economic data is still poor and getting worse.  Currently it does not matter.  However, the market is famous for flip flopping on a dime.  Some day it might matter again.  There really is nothing more to say until the market stops going up.

Bob