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Friday, May 31, 2019

Daily update 5/31

Surprise.  More tariffs.

Trump announced tariffs on Mexico to coax them into slowing down the immigration trains to the U.S.  after hours last night.  That sent the futures down and they stayed there all through the day today.  Breadth was -68%.  New highs were 86.  New lows were up again to 247.  The blue candle indicates SPX closed below the lower Bollinger Band so price is a bit extended.

The futures are not telling us much we don't already know.  The market is falling.

The red count finally hit oversold levels.

SPX hit the 2750 target early in the day and held all day.  Now that we have a short term oversold condition we might see a bit of a bounce.  However, I don't think we are completely done going down.  Volume was elevated today, but I am not seeing anything that looks like panic.  Given the current technical condition of the market some panic is probably needed to generate a sustained rally.  The first week of the month is often bullish so maybe the bulls will try another bounce early next week.

Have a great weekend.


Thursday, May 30, 2019

Daily 5/30

That was a weak bounce on low volume .

The day started with a bit of a gap up and follow through buying.  SPX got within a couple of points of closing yesterday's gap down before the sellers showed up.  The sellers pushed SPX back down below the morning low.  Breadth was slightly negative. 

The futures show an unenthusiastic bounce so far.

The red count slipped a little. 

During the mid day sell off SPX got almost down to the 200 DMA before the buyers showed up.  There are a few dip buyers in this area, but I do not believe there will be a significant bottom here.  The bulls will need to show us a lot more strength to make me believe they are serious.


Wednesday, May 29, 2019

Daily update 5/29

Break down below 2800 and test of 200 DMA.

SPX opened below 2800 and mid day tested below the 200 SMA.  However, there was no panic selling and a few dip buyers showed up.  SPX ended the day 17 points off the low.  Breadth was -65%.  New highs dropped down to 73.  New lows spiked up to 205.  That is a new high number for this pullback.

The futures have not been this low since back in March.  They show a break of the 200 SMA and then a rejection of that MA on the bounce attempt.  That probably opens the door to more downside.

The red count was up a bit more, but remains below the oversold level.  The intermediate indicator needs to get back above 50 before we can talk about this correction being over.

I am not hearing any fear or panic.  I think I even heard people talking on CNBC about the lack of panic selling.  That generally means there is more to go on the downside.  The bulls may mount a bounce here off the 200 DMA, but they will have to show they are serious to make a convincing bottom.  A bounce here to test 2800 from below would not be unusual.  I think the lack of panic indicates there could be sellers still lurking on strength though.  The 2750 and 2650 targets are waiting down below on further weakness. 


Tuesday, May 28, 2019

Daily update 5/28

Test of the 5/13 low.

SPX made a new low close for the current pullback.  Volume was fairly heavy.  The day started with a slight gap up so the sell off was not on overnight news.  Breadth was -65%.  New highs were good at 128.  New lows were high at 105.  It is very rare to see both over 100. 

The futures are down below the 5/13 low in after hours.  If they are still there in the morning then SPX will start out below the key 2800 support level.  If the dip buyers don't show up then we are starting another leg down.

The red count remains above 50, but a bit below oversold levels.

If the market continues down I had a 2750 target based on the consolidation.  However, in looking at the chart tonight I see it has a head and shoulders top look to it.  A target based on that pattern could be around 2650.  Both of those targets are below the 200 DMA which could catch this pullback.  If SPX breaks the 200 DMA then those other two targets would come into play. 

The biggest worry for this market is that there is very little worry.  There is an obvious triple top in SPX and many indexes did not make a new highs.  Despite the very poor technical condition I am not hearing anybody pointing it out.  What happened to all the perma bears?  Am I just missing them or something?  If SPX ends up breaking the Dec. low it is going to get very ugly.  I would consider this top pattern to have started in Jan. 2018.  We had euphoria and that was clearly the momentum top.  That would probably make this the longest top pattern in the last 100 years.  The bulls have a lot riding on how the current pullback unfolds.


Friday, May 24, 2019

Daily update 5/24

The bulls drove up futures overnight, but the sellers hit shortly after the open.

SPX got above yesterday's high at the open, but failed to stay there.  Breadth was +64%.  New highs picked up to 128.  New lows dropped to 86.  Volume was really light ahead of the three day weekend.

The futures bounced today, but failed to get back above the 200 SMA.

The red count inched up a bit.

The bulls made a halfhearted effort to push the market higher.  The 2800-15 area is providing some support, but unless the bulls can get some lift it is destined to fail.  Maybe next week will tell the tale.

Have a great weekend and remember our fallen heroes.


Thursday, May 23, 2019

Daily update 5/23

Test of 5/13 low.

SPX came within 4 points of the 5/13 low before bouncing in the last hour.  Breadth was -76% and volume was fairly heavy.  New highs dropped to 77.  New lows spiked up to 176.  That is the most new lows since back in late Dec. 

The futures are back below the 200 SMA.  Will this be a double bottom or are they breaking down?

The red count crossed above the green line and 50.  The bears are attempting to retake control.

SPX closed 17 points off the low.  Right about 3 PM I see TLT (bonds) sold off and SPX rallied significantly.  That suggests there might have been some big portfolio adjustment from bonds to stocks.  That makes some sense as bonds have rallied significantly during this pullback in stocks.  I don't think that is a reliable signal that today's retest of the 5/13 low will be successful.  The bulls will have to show up again tomorrow and keep things going.  I do not know how strong the support is in this 2800-15 area.  Will it be strong enough to try to bounce again?  If SPX continues down through the 5/13 low then this consolidation should be about the mid point of the move.  That suggests a target in the 2750 area which would be below the 200 DMA (2777).


Wednesday, May 22, 2019

Daily update 5/22


Yet another gap down to start the day.  Yet another bounce right from the open.  Yet more selling after the early bounce.  Some investors are buying dips and some are selling rallies.  Neither side is doing it with any enthusiasm.  Breadth was -60%.  New highs dipped a bit to 96.  New lows picked up to 89.

The futures are showing a narrowing of the price range over the last few bars.  Equilibrium, but for how long.

Both counts turned up a bit today.  The green count is still above the red, but below 50.

We have seen so many V bottoms for so many years the hesitation here seems almost unnatural to me.  Today continued the look of a pump and dump day.  I completely understand the lack of buying enthusiasm.  How long this consolidation lasts is anybodies guess.  The longer it lasts the bigger the move out of it should be. 


Tuesday, May 21, 2019

Daily update 5/21

No bad news overnight so "they" pumped the futures up a bit.  After the open "they" started hitting the bids. 

Despite strong breadth (+75%) SPX did not make much headway after the open.  New highs were 106.  New lows dropped to 54.  Today's high was 4 points short of the 50 SMA.

The futures are showing a weak bounce from the oversold condition so far. 

The green count crossed above the red line.  It remains well be 50.  The question is will this be a bounce cross and bring out the sellers or not.

Sometimes a bounce like this can get legs.  However, I think the trade situation is becoming clear to everybody no matter what they say.  The tariffs are here to stay and there may very well be more bad stuff to come.  The current bounce has acted like a pump and dump scheme as expected.  I do not know how long this pause will last, but it seems pretty likely the end result will be lower prices eventually.


Monday, May 20, 2019

Daily update 5/20

More trade tensions.

Europe was down a sizable amount which sent the U.S. market down at the open. However, once again there was not a lot of interest in selling into the weakness.  After an early morning bounce the sellers went to work hitting the bids.  Breadth was -64%.  New highs dropped to 71.  New lows picked up to 116.  Technology was hit as the trade war hurt the semiconductor sector especially hard today. 

The futures ended the trading day below the 20 SMA, but have not confirmed a break yet.  At the 5 PM. bar close they were up 6 points from the 4 PM close.  I do not know what that is about.

The red count recrossed above 50 keeping the bears in control for the moment.   With the intermediate indicator below 50 there is some risk of more downside if SPX falls through the recent low.

The utilities were in the green as some money rotated into that safety play.  There is definitely some de-risking going on, but money must be staying in the market or we would have been down more today I think.  I do not know how many more downside gaps the market can stand and still hold up.  SPX is consolidating at the lows.  The question is whether it is making a bottom, or pausing before going lower.  SPX tried to get over the 50 DMA but appears to have failed.  That is a negative.  The market has been so strong this year I hesitate to say a trip to the 200 DMA (2776) seems like the most likely outcome.  That is probably where we are headed if the bulls don't pull a rabbit out of the hat pretty soon.


Friday, May 17, 2019

Daily update 5/17

More bad trade news as China talks seem to be on hold for now.

The market gapped down on trade headlines, but there was little selling interest.  That allowed the bulls to mount a big mid morning rally that took SPX positive.  However, two sell programs hit the market.  The first one was late morning.  After it finished the market bounced enough to get SPX back to green.  Another sell program hit in the afternoon.  Breadth was -71%.  New highs were 109.  New lows picked up to 77.

The futures touched the 20 SMA, but managed to stay above it. 

The red count turned up, but remains below 50.

The futures held the 20 SMA keeping the bounce alive in theory anyway.  I suspect if the news flow allows there will be more upside.  I also believe that like yesterday and today some investors will be selling into any strength.  Monday will be interesting.  Will the bulls or bears show up?  Closing below today's low would probably indicate the downtrend is resuming.


Thursday, May 16, 2019

Daily update 5/16

The bulls return.

A small gap up led to a buying explosion right from the opening bell.  The market peaked mid day and there was some selling in the afternoon.  Breadth was +65%.  New highs expanded to 174.  New lows contracted to 40. 

The futures confirmed a break of the 200 SMA.  They ran into resistance at the 50 and 100 SMAs.  I think as long as they remain above the 20 SMA the bounce remains alive.

The red count dropped below 50, but is still above the green line. 

In Daily update 5/9  I wrote:

"Here is my theory.  This downturn started with a tweet and caught everybody by surprise.  The big players were all long as there was so much happy talk about a deal being close.  The last few days were mostly about hedging rather than selling.  The big players will engineer a rally from here which they will sell into and get short for the real downturn to come."

They have engineered a rally this week.  Some people sold into it today.  I would not be surprised if SPX makes a new high.  However, I think the game really has changed.  The rally this year was predicated on a deal being reached with China which investors were being led to believe would be soon.   It is now clear there will be no deal with China anytime soon.  I cannot imagine that will not cause at least some de-risking for money managers.  They will probably all get on TV with happy talk while their office is selling into this rally.


Wednesday, May 15, 2019

Daily update 5/15 Industrial Production

An interesting day.

The day started with a gap down that the dip buyers came out to buy up.  They lacked enthusiasm, but they held the market up.  Then a headline hit that the Trump administration will not be putting on any auto tariffs for now.  That brought out the buyers and sent SPX into positive territory.  Breadth was +62%.  New highs were up to 104.  New lows were stable at 62.

Tee futures ended the day above the 200 DMA, but have not confirmed a break yet.  They are currently right at the 20 SMA.  The last bar was green.  In a downtrend that can bring out the sellers again.  Tomorrow will be interesting to see if the bulls come out to play again or not.

The red count dropped back to 50 indicating the short term oversold condition has been worked off.  The intermediate indicator fell all the way to 47.  That probably means that a break of Monday's low could bring on significant selling.  Another 5% down would not be surprising in that case.

Today's industrial production reading was much worse than expected.  This is a pretty good measure of economic strength.  It is not looking good at the moment.  However, we will have to see if it gets revised higher next month.

We have had two light volume up days, but no clear sign a bottom is in yet.  The bulls will have to come out to play again tomorrow.  There is some risk today's headline driven move gets retraced in the next day or two.  The last two days could simply be a pause on the way down.  The bulls need to show a little more enthusiasm to keep the bounce going.  Maybe that will happen, maybe it won't.

The economic data is still showing some weakening around the globe including the U.S.   That could dampen enthusiasm for stocks.  With the FED doing QT a sharp rebound seems unlikely to me.  I guess we will see.


Tuesday, May 14, 2019

Daily update 5/14

Oversold bounce off of support.

SPX opened higher and pushed considerably higher though the early afternoon.  However, sellers entered the picture late in the day and sent SPX down 18 points from its high.  Breadth was a strong +69%.  New highs were stable at 73.  New lows dropped way down to 53. 

The futures rallied back above the 200 SMA, but failed to stay there.  They are currently just below that line.  Will the bulls come back again or will the 200 turn out to be stiff resistance.

The red count backed out of oversold, but remains well above 50.  The more important thing to note is the intermediate indicator dropping to 50.  This is highly likely to continue lower over the next few days.  The door to a bigger pullback is definitely open. 

The bears started selling into strength before the day was over.  That kept SPX from closing above the prior day's high.  The 2800-15 area could be significant support.  The bulls may defend that area if tested again over the next day or two.   The market is just oversold enough that the dip buyers might show up again.  I think the investor mindset has changed on the China trade deal though.  It seems likely to me that 2800 will eventually fail.


Monday, May 13, 2019

Daily update 5/13

Thanks to Trump tweets the bears came out to play big time.

Selling dominated the early part of the day.  However, SPX got near 2800 and found some buying support.  Volume was considerably higher than Friday's buying spree.  Breadth was -83%.  New highs were down just a little to 64.  New lows spiked up to 124.

The futures were down over 50 points from Friday's 4 PM close at the open.  They confirmed a break of the 200 SMA today.  That opens the door to a bigger decline.  We will have to see if the bears step through that door.

The red count reached over sold levels now.  The intermediate indicator is already down to 53.  Dropping below 50 opens up a door to a bigger correction. 

In the near term, SPX is short term oversold in the 2800-15 support zone as shown on the daily chart above.  That could lead to a bounce, but oversold can always become more oversold.  Should such a bounce occur I am even more sure now that the big money will be selling into it.  If SPX breaks below 2800 the 200 DMA (2775) is the next support area.

I think investors are rethinking that idea that cooler heads will prevail and a trade deal with China will be forthcoming.  As you know I have been skeptical this entire time.  In Daily update 7/20 I wrote:

"I can understand the hesitation from buyers with all the trade rhetoric going on.  I still heard people on TV today saying they think people will come to an agreement and this will all be over.  I am usually pretty good at reading people and I just don't see that happening.  Trump's version of walking away from the negotiating table in a trade deal is to use tariffs.  You won't deal with me I will just load up the tariffs.  Xi has been elected president for life.  He has no electorate to worry about.  He is sure he can just wait it out until the next U.S. election.  Both are sure they can win a trade war.  What am I missing?  I don't believe either is going to blink in the near term."

Since I wrote that last July there has been a lot of talk, but no deal.  I don't see how a deal gets done anytime soon with escalating tariffs. 

We are faced with the potential of a bearish setup.  SPX may have made a triple top.  Neither the industrials nor the transports made a new high.  We might be starting a real trade war on top of an already weak global economy. 

It was not long ago that people were talking about a melt up.  Clearly investors were very long and now they are wrong.  I can't imagine those investors not wanting to cut back on the risk level on bounces.


Friday, May 10, 2019

Daily update 5/10

A little selling on the tariff news, but buyers showed up around noon.

SPX made a wide range bullish engulfing bar.  Breadth was +62% which is quite strong for this situation.  New highs were stable at 72.  New lows were down considerably at 60.

The futures tested down to new lows this morning, but bounced strongly.  This looks like a good bounce off the 200 SMA. 

The stage is set for a bounce next week which is option expiration.  The bulls just need to show some follow through.  I have not heard how China will retaliate for the increased tariffs.  What that means for the market when they make their move remains to be seen.  First things first though.  Lets see if the bulls show up on Monday.

Have a great weekend.


Thursday, May 9, 2019

Daily update 5/9

I guess everybody is ready for the tariff increase tonight at midnight.

SPX tested lower this morning, but found support early in the morning and closed well above the open.  Breadth was -56%.  New highs were 63.  New lows spiked up to 86.

 The futures bounced off the 200 SMA.  This is a good place to mount a bounce from.

The red count turned down a bit. 

I am assuming the tariffs are going up tonight.  While everybody will expect the market to go down, it probably will bounce.  It would be like the market to do the opposite.  Besides they have already sold the rumor.  It might be time to buy the news.  If we continue down 2815 should be pretty decent support. 

Here is my theory.  This downturn started with a tweet and caught everybody by surprise.  The big players were all long as there was so much happy talk about a deal being close.  The last few days were mostly about hedging rather than selling.  The big players will engineer a rally from here which they will sell into and get short for the real downturn to come.

I keep hearing people saying both sides want a deal.  I really do not understand that at all.  In no way does China want to make a deal.  They can only lose compared to the way things are  now.  What they want is for Trump to go away.  If I was Xi I would try to look like I was negotiating in good faith while simply waiting Trump out hoping he loses the next election.  There is no way I would make a deal that could possibly help Trump get reelected.  I would try to get Trump to raise tariffs enough to cause the economy to suffer.  The best way to get somebody else elected would be for the economy to tank.  Xi has $3 trillion with which to stimulate the Chinese economy during a global downturn.  Let me see.  Trump has $21 trillion in debt that is rapidly rising.  Borrowing money to stimulate the economy has been shown historically to be ineffective.  Trump gets the blame for the economic downturn because of the tariffs.  That causes somebody else to get elected.  That person will be chicken to do anything with China and Xi looks like a hero.  Exactly why is it Xi needs to make a deal?



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