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Monday, March 18, 2019

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


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