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Monday, June 10, 2019

Daily update 6/10

A little profit taking hit after more upside in the morning.

The market gapped higher on confirmation of no tariffs on Mexico at this time.  After some more buying into mid day a few investors started taking some profits.  That lasted into the close.  That left SPX with a gravestone doji candlestick.  This was the first real profit taking since this bounce started.  As big a move as we had last week a little more pullback would be normal.  Breadth was +58%.  New highs were 206.  New lows dropped down to 27.

The futures are well extended from the 20 SMA.  A pause or some retracement to let that MA catch up would not be unusual. 

Obviously the market got very overbought in the short term.  The trouble is how do we interpret this move.  The internals were very strong.  However, the entire move was spawned by headlines that did not actually do anything fundamentally.  The FED said they would consider lowering rates, but have not done so.  Headlines hit that the threatened tariffs on Mexico might not happen.  Those tariffs were never actually put on.  It is not like tariffs were removed.  We still have the outstanding issue of trade with China which is what sparked the first leg down of the May sell off.  The second leg down was largely on overnight news with very little selling into the weakness.  There was no panic type climax low to suggest the selling is over with.  SPX has now returned to the area where there was some resistance developing after the initial sell off in early May.  Are money managers happy with their positioning relative to the trade war with China?  Unfortunately I do not know the answer to that question.  If the market ends up selling off again that seems like the most likely culprit.

I don't think there is any more particularly good news on the short term horizon.  The situation with Mexico has been resolved for now.  The FED is not likely to cut rates at the June meeting.  It is unlikely we will get a deal with China in the near future.  I hear they are sending stuff out with fake made in XXXX labels to get around the tariff issue.  We still have some time before the next batch of earnings.  I do not know what the market is going to focus on in the mean time.  Some consolidation seems likely in the short term.  The 50, 20, 100, and 200 SMAs are all below SPX (in that order) at the moment and any of them could provide support.  Until the bears do something significant the bulls are in control.


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