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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.


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