Daily update 3/29

Positive trade comments were enough to cause a gap up.

After the open some sellers came in right away.  The market traded sideways most of the day and SPX closed near where it opened.  Breadth was +59%.  New highs were 134.  New lows slipped to 23.  Volume was elevated at quarter end.

The futures headed up to retest the recent high, but failed to make any progress after the open.

The green count fell, but remains above the red line.

Since SPX did not make any progress after the open it is hard to classify today as a thrust day.  I guess we will find out next week if the bulls are serious about sending prices higher or not.

Have a great weekend.

Bob

Daily udpate 3/28 SPY option data

Inside day, but a test below 2800 found buyers again.

SPX rebounded a little bit today.  This is the second day in a row a large sell program hit the market shortly after 10:35.  They both ended around 11:45.  The market internals were stronger today than yesterday so the selling did not take SPX down as far today.  It did get down below 2800 though.  Once the selling stopped the market rebounded through the afternoon.  SPX is making lower highs and higher lows this week.  Price is tightening up for a bigger move.  We should get a day with a range expansion that should see some follow through at some point.

The futures remains trapped between the 20 and 100 SMAs.

The green count recrossed the red line.  We are getting a bit of a braided pattern indicating consolidation.  As we know consolidations can be either a pause to continue a move or a reversal pattern.  Which way will this one break?

The option data shows the strongest support at 270 and 275.  However, the number of puts is well lower than we usually saw before the Dec. meltdown.  The only call strike (potential resistance) worth mentioning is 285.  Even that level does not have a particularly large number of calls.  I guess the volatility explosion in Dec. has mellowed out the option sellers a bit.

SPX has had resistance at 2820 and support at 2800 this week.  It manages to penetrate those levels at times, but has been unable to stay there.  There were positive comments on the trade talks today which I think helped the market.  However, Kudlow also mentioned the talks could take months.  I would actually expect that if we were to get a good deal.  A quick deal with China will not be worth much to the U.S. in the long run.  I am also hearing more talk from people becoming concerned with the global economy.  At the moment that concern looks valid to me.  The U.S. while still plugging along is also slowing.  I am sure this is causing the hesitation by investors to run prices higher.

Bob 

DaIly update 3/27 Blue, Red and Grey: Yield Curve Inversions

SPX held 2800 again.

The bulls tried out of the gate to rally the market again.  However, the sellers showed up to sell into the strength.  Mid morning they took control and sent SPX down to test the 3/25 low.  The selling stopped there and dip buyers rushed in to send SPX back above 2800.  Breadth was -53%.  New highs were stable at 142.  New lows picked up a bit to 30.  SPX first crossed above 2800 this year on 2/25.  Over the last month SPX has gone nowhere. 

The 20 SMA appeared to act as resistance today.  The futures are trying to hang on to the 50 SMA.  Will they break the 20 or 100 SMA first?

The red count crossed back above the green line.  There is some indecision here at the moment.

SPX has been stuck around 2800 for the last month.  It tried to sell off and it tried to break out above the highs from last fall.  Both moves failed.  I believe investors are hesitant to sell in case a trade deal with China is released.  At the same time, I think they are hesitant to buy because of the slowing global economy.  I don't know if a trade deal will be reached.  I do know the global economy is truly slowing.  I think it is getting close to stall speed.  I guess the market wants some clarity before proceeding one way or the other.  I have no idea when that might come.

Interesting look at past yield curve inversions and what SPX did.  Blue, Red and Grey: Yield Curve Inversions

Bob

Daily update 3/26

Bulls strike back.

The market gapped higher and ran up a bit more.  However, there was selling into the strength that eventually caused the market to pullback well off the high.  SPX rallied 9 points in the last 15 minutes to make the day look stronger than it really was.  Even with that rally SPX was still 11 points off the intraday high.  Breadth was +71%.  New highs popped up to 137.  New lows dipped to 21.  Volume was light again and slightly less than yesterday. 

The futures rallied above the 20 SMA early in the day, but closed back below it.  We got the bounce off the 100 SMA, but it is inconclusive that the pullback is over.

The green count crossed back above the red line, but barely.  Sometimes when the market consolidates these lines will form a braided pattern.  It is a bit early to say that is what is happening here, but that is one possibility.

The bulls came out to support the 2800 level.  However, they did not have enough vigor to say they have won the battle yet.  Near as I could tell the market gapped up on a report from Goldman that we should not fear the yield curve inversion.  I don't think that in itself will be enough to send the market breaking out again on the upside.  It is in a precarious position here.  Another close below 2800 might bring out more profit taking since we would then have a lower high.  The bulls could use another upside thrust bar to wipe out the big down day from Friday. 

Bob

Daily updatre 3/25

Pause day.

SPX gapped down below 2800, but crossed back above that level three times during the day.  However, each rally was met with selling and at the end of the day SPX was below 2800 and the 20 SMA.  A close below today's low would confirm the failure of the break out over 2800.  Breadth was nearly dead even.  New highs plummeted to 70 while new lows picked up to 56.  Volume was really light which would seem to indicate some indecision.  I would guess a lot of people were waiting to see what the market would do after Friday's sell off rather than snapping up bargains or selling with both fists.

The futures have found support for the moment at the 100 SMA.  Will they break or bounce?

The red count remains below 50, but above the green line.

Since SPX is just below 2800 the bulls still have a chance to save this rally.  The question is whether they want to or not.  I don't know the answer to that.  We will have to see who shows up the strongest tomorrow.

Bob

Daily update 3/22

Buyers remorse?

The sellers wiped out yesterday's gains in the first 30 minutes of trading.  Breadth was -79%.  New highs were 155.  New lows picked up to 49.  SPX dropped back below the highs from last fall. Technically you might call this a failed new high.  It is still above 2800 at the moment though. 

The futures fell back to the 50 SMA.  A logical spot to bounce from.

The weekly chart shows SPX getting up to the upper Keltner channel line.  This is potential resistance.  That is a pretty clear reversal bar this week.  Will there be downside follow through next week?

The talk of green shoots I have been hearing lately was wiped out by abysmal data from Europe today.  How many times have I commented how the market was ignoring some really poor economic data.  It finally woke up for one day at least.  The question is whether the market decides to forget the bad stuff again or not.  All I know is that the bad stuff is getting pretty bad and there is no sign of a turn up yet despite what people are saying. 

The bears need to see SPX close below 2800.  The bulls need to see a rebound on Monday that sticks all week.

More poor economic data from Europe.

• Eurozone March flash Manufacturing PMI 47.6 (expected 49.5; last 49.3) and Services PMI 52.7, as expected (last 52.8). 

I hear people talk about green shoots in the global economy, but I sure can't see them.  My observations over the years also tells me that ECRI 's long lead indexes will turn up before real green shoots develop in the economy.  Since it does not appear that has happened yet I think we can expect more poor data for the next 3-4 months.

Have a great weekend.

Bob

Daily update 3/21

I guess overnight many investors liked the idea the FED was more dovish than expected.

The buyers came in on the gap down immediately and just kept buying all day.  You would have thought we were just coming off an oversold low.  Breadth was +68%.  New highs expanded to 170.  New lows dropped to 20.  The new red line marks the Jan. high.  The prior resistance box I changed from red to green to indicate potential support. 

The futures bounced off the 20 SMA to make a new rally high.

 
The green count recrossed 50.  The intermediate term indicator is showing some negative divergence so the rally is thinning out.

I thought all the good news was out before, but I was wrong.  The FED pivoted even more than people expected.  All the good FED news is definitely out now.  That leaves the China trade deal.  The last I heard on that actually seemed like a bad thing for the market.  Trump was saying the tariffs could be on for a long time.  I have been under the impression the market expects that as soon as a deal is reached the tariffs will be dropped.  That does not sound likely to me now, but I could be wrong.  I think there still are a lot of significant issues remaining as well.  Another question I have is will the market realize the FED ultra pivot stems from the very poor economic data.  In Dec. there was supposed to be more rate hikes and no end to QT in 2019.  Now there are no more hikes and QT will even end in Sept.  That did not happen because they are being patient.  That happened because they are getting worried.  The 2-10 yield curve has not inverted yet, but significant parts of the yield curve have.  Yesterday's announcement actually made the inversion worse.  Will the market notice?  Beats me.  This seems too late to be piling in long, but bears have nothing to work with at the moment.

Bob

Daily update 3/20

The FED was even more dovish than expected and yet the market did not rally.

Two days of increasing volume smells like distribution.  The breadth was -54%.  New highs dipped to 88 while new lows doubled to 39.  Is the market starting to roll over?

The futures tested the 20 SMA, but held above it at the close.  They are currently trading right at it.

The green count dropped below 50 and is barely above the red line.  A negative cross would be easy now.

The market was expecting the FED to lower their so called dot plot to one more rate increase this year.  They lowered it to 0 hikes the rest of the year.  The lowered GDP estimates for this year and next.  They also announced a plan to start winding down QT in May and terminate it by Sept.  The FED was more dovish than people expected and a surge of buying came in.  After everybody piled in over the next hour the sellers came out again.  Earlier in the day Trump said the tariffs on China could be on for a long time.  I think the belief by investors has been a trade deal would be done shortly and the tariffs would be ended.  I have argued against that being the result in this blog.  I do not see a quick deal.  What I heard today is that even if a deal is signed the tariffs may remain in place until it can be determined that China is living up to the deal.  I don't think the market is going to like that idea one bit.  The reaction was likely muted today because of the FED.  I am not so sure that will be the case tomorrow.

A close by SPX back below 2815 would indicate a probable break out failure.  A close below 2800 would confirm that idea.  I would expect a lot of selling should that occur. 

I heard Powell talk about weakness in Europe, but said he does not see a recession there.  That got me to thinking that a central banker has not and never will see a recession until after just about everyone else has already figured it out.  Imagine what would happen if they pointed that out before the market knew it.  My point is not to be comforted when central bankers say they see no recession at this time.  The truth is Europe is weak enough the risk of recession is the highest it has been since the global recession ended in 2009.  Time will tell if they avoid a recession or not.

Bob

Daily update 3/19

It was a bit of an odd day.

SPX gapped up at the open, but went nowhere.  Mid morning there was a significant buy program that hit the market which sent SPX to new highs.  After that ended, the market was drifting lower when a headline about China trade troubles hit.  That sent SPX down nearly 30 points from the high.  A late day bounce into the close made things less bad.  Breadth was -58%.  The trade headline definitely took a little bid out of the market.

The futures are showing the first white candle since this bounce began.  That might bring on a consolidation/pullback.

The green count turned down a bit, but remains above 50.

The breadth chart shows the 10 DMA lines barely have a positive cross.  The McClellan oscillator briefly crossed above 0, but went negative again today.  Not a lot of strength here.  We could be looking at a short term top forming.

Tomorrow the FED is expected to announce plans to end QT by year end.  That could be one reason why there has been a lack of sellers lately.  I don't know if that will be a sell the news event or not.  The transports and the R2000 have not participated in this last bounce.  They are still below their 200 DMAs.  When SPX was up early in the day transports had already started selling off and were fairly red early on.  I know SPX broke out above the series of highs since last Oct., but the market is still not getting into gear.  However, it was that same way last summer, but SPX kept marching to a new high.  Will it be able to do that again?  I don't really know.  It would not shock me, but neither would making a lower high and retesting the Dec. low.

I heard talk of green shoots in Europe today, but that is not clear at all to me.  I think people are saying that based more on the markets rallying than on actual data.  Data in the U.S. is still softening.  I don't know how all this will work out.  ECRI has been out talking about their long lead indexes after they detect a change.  For the last few years they have been spot on saying the global economy was set to pick up or slow down.  I would think they will continue to do that.  To date they have not mentioned a turn up in the long lead indexes.  That means there is still downside risk in the global economic data over the next three to four months.

Bob

Daily update 3/18 The Canary in the Semiconductor-chip Fab

SPX closed slightly above yesterday's high thus confirming the break out.  However, it was only 2 points higher so not exactly a strong vote of confidence. 

The market started up right from the open.  The bulk of the gains happened in the first 30 minutes as the market traded sideways the rest of the day.  Breadth was +65%.  New highs were 112.  New lows came in at 19.  I heard Bob Pisani mention there have been a lot of utilities and REITs in the new high list lately.  That suggests a defensive tone for the market.

The futures trudged slowly higher.  There was a large sell program that hit the market around 11 AM that took the futures down almost 15 points from the high.  Buyers stepped in after the selling stopped and took them back to the high in the afternoon.

 
The green count is still below overbought.

This break out in SPX is definitely not enthusiastic.  Even though the break out is confirmed the confirmation is not particularly strong.  We could still have a failure here.  Enthusiasm may pick up yet, but I have no way of knowing that.  The economic data is still showing weakness, even in the U.S.  The market has been ignoring it so far and it could continue doing that.  On the other hand, some day it may matter.  I am sure there was a concerted effort on the part of the bulls to break SPX out above the highs since last fall in hopes more people would jump in and drive the market higher.  I don't know how much of the buying on the break out has been short covering versus new longs.  If the majority of the buying has been short covering that will run out soon as the last I saw short interest was actually low compared to recent years. 

There was a big inflow of funds into stocks last week.  I believe I heard it was the biggest in a long time.  How do we interpret that?  Was it the start of money to come into the market?  Was it some kind of capitulation from people that were waiting for a retest of the low?  If it was the start of inflows then SPX could test last years high.  If it was some kind of capitulation then this rally might be near the end.  Only time will tell which it was.

ECRI with charts showing a huge collapse in global semiconductor demand and their leading indicator still falling.  The Canary in the Semiconductor-chip Fab

Bob

Daily update 3/15

Break out?

SPX closed above all the important highs since the correction began.  However, it closed off its high and only 1 point above the Wed. high.  Breadth was only +57% which is not much for an important  break out.  This not very convincing at the moment.

The futures closed at a rally high.  They don't tell us much else though.

The green count crossed above 50, but just barely.

Today's break out was not very strong.  The bulls will need to keep it going next week.  Will they show up again?  I want to see confirmation by a close above today's high.

Have a great weekend.

Bob

Daily update 3/14 STA Weekly Report – Market Regains Confidence But Fundamentals Disagree

Pause day, but it looked like a little bit of distribution going on.

SPX never got going on the upside.  Breadth was -56%.  New highs dropped way down to 105.  That is not very inspiring since they were 175 yesterday.  New lows picked up a bit to 21.

The futures did not have much range today.  There is the possibility of a short term double top if the bulls don't come back in tomorrow.

The green count was up a bit, but remains below 50.  If the market turns down it would be easy to get a negative cross again.

The bulls are mulling over whether to chase price higher or not.  If they decide not to break out this market out there is the possibility we see the Dec. low again.  There have been so many attempts at this 2800-20 area in the last few months that I think another turn lower will cause a lot of profit taking.  I think it would have been more bullish longer term to have retested the Dec. low back in late Jan. or early Feb. then continue higher.  The way this rally unfolded the bulls have a lot riding on going higher now.  A failure could get ugly fast.  So we wait and see what happens.

Interesting snippet from STA Weekly Report – Market Regains Confidence But Fundamentals Disagree

Our investment process follows a three-pillar approach that combines research in macroeconomics, fundamentals & valuations, and technicals. Weakening fundamentals, rising valuations, and overheating technicals all argue against a further rally in the short-term. Therefore, we are not too surprised by the markets pullback last week. While not bearish, we remain cautious and guarded and encourage our readers to stick to a well-defined investment discipline and risk management process, rather than following “gut feelings” that could lead to return-chasing behavior.  

Bob

Daily update 3/13

The bulls pushed SPX to a new rally high close.

For the third day in a row the market gapped up and held the gap.  Yes, that means there are now three open gaps just below where we are.  This is what I call an aggressive retest.  Those are prone to reversal so we will have to see what happens this time.  Intraday SPX got above the 3/4 high, but muddled around and eventually sold off a bit.  The breadth was +66%.  New highs expanded to a new rally high of 175.  New lows were stable at 16.

The futures got slightly above their 3/4 high intraday.  They are up a bit in after hours, but still below that 3/4 high now.

The green count crossed above the red line, but remains below 50.  This has a good ways to go before becoming overbought.  Alternatively, if the market reverses this is showing a big negative divergence.

The bulls have forced this market up by bidding the futures up overnight.  Now that we are at the recent highs this is the moment of truth.  To break out or not to break out.  That is the question.  I think the bulls are trying to push the market up in hopes they will get others to buy in and keep it going up.  I do not know if that will work.  Sometimes it does and sometimes it doesn't.  There wasn't any buying interest today when the futures got above the 3/4 overnight high.  However, tomorrow is another day.  There is definitely a lot riding on this for the bulls.  This is the fifth time since the initial sell off from the bull market high that SPX has tried to conquer this area.  It is rare to get five attempts at anything in the market.  Usually three settles the matter and occasionally four.  There has been no retest of the low and now SPX just created three open gaps this week.  I really don't know if people are going to buy this or not.  Stay tuned.

Bob

Daily update 3/12

Resistance met.

SPX essentially found its high early in the day.  It tested that high two more times during market hours, but pulled back each time.  There was clear resistance today just below 2800.  Breadth was +56%.  New highs expanded to 145 which is pretty good.  New lows came in at 15. 

The futures confirmed a break of the 50 SMA, but just barely.  They have not made any more progress though.

The red count dropped below 50, but is still above the green line.  The bulls are not in the clear yet.

When the data for the climax low dropped out (as seen by the linear regression line) of the long term bull pressure data the green line eclipsed two key levels.  This much strength was not seen in the last two bear markets. 

This is rather complicated.  The breadth data for the advance/decline line (which made a new high) and the my bull pressure lines indicate we should not be in a bear market.  The VIX says we probably are.  There are a few other confirming indicators I look at that have not given the all clear yet.  I cannot recall a sell off that hard as we saw in Dec. end without a retest of the low.  That retest might make a higher low, but there has always been some kind of test.  The recent pullback was not deep enough to be a retest. 

What makes things really complicated is the global economic growth keeps getting downgraded by various organizations around the world.  I just recently saw a downgrade from 4% to 2.1% growth for 2019 for the global economy.  That would be the weakest growth since the global recession.  If I remember correctly 2% global growth is considered a global recession.  Leading indexes are still falling so I think we can expect 3 months of weaker global data is already in the pipeline.  I believe SPX will have a tough time getting above the recent highs until people can see the global economic slowdown is coming to an end.  I have commented for years in this blog that I expected the end of the bull market to be caused by global economic problems.  That would catch many investors by surprise.  That is definitely still a possibility.  I don't believe this situation has ever existed before.  It is usually the U.S. that leads the global economy into and out of trouble.  Globalization has changed everything though.  History is of no use here.  I am monitoring the economic data closely.  Currently the U.S. seems to be catching down to the global economy, but I can't be sure how much affect the government shutdown was on the data.

If the China deal gets put off for too long or cancelled the market will not like it.  If some kind of deal gets signed that does not take the tariffs off the market won't like that either.  I don't think that is likely though. 

In the next several weeks some kind of retest of the low seems likely.  The result of such a test will help determine the long term course of the market.  A solid break out above the recent highs would change the outlook.

Bob

Daily update 3/11

Bulls show up on cue.

The buyers came in right on the open and kept at it all day.  There was absolutely zero selling pressure.  It is very rare to see a big day with such shallow pullbacks.  Breadth was +77%.  New highs expanded to 108.  New lows dropped back to 21.

The futures crossed the 50 SMA.  They have not confirmed a break yet.

The red count dropped back from near oversold levels, but remains above 50.

Is the pullback over?  Is this the start of a new leg higher?  Beats me.  The bulls will need to conquer the recent highs.  I don't really know what sparked the move.  QQQ showed relative strength and so did the SOX.  There was news about NVDA making a big acquisition.  I guess that might have been the match.  I expected a rally this week for option expiration off of the slight oversold condition created last week.  However, I have no idea how far it will go.  This could be some kind of retest of the recent highs before more downside.  I know there was significant resistance around 2815.  The question is whether we had enough of a pullback to get the energy to break through.  I can't answer that question.  There was no selling pressure today at all.  It was not like the sellers were out there and the bulls were powering through.  Will the sellers emerge again when SPX gets back up around 2800?  Good question.  I wish I knew the answer.  What I do know is that we don't have enough information yet to know if this is a meaningful rally or just an oversold rally destined for failure.  Any prognostication would simply be a guess.

Bob