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Thursday, June 20, 2019

Daily update 6/20

Destination reached.

SPX gapped up to the new ATH we have been expecting.  Volume was elevated again.  Breadth was +69%.  New highs were 330.  That is the highest since Jan. 2018.  This is a rapid retest of a prior high.  Those patterns often lack significant follow through.  Dave Landry likes to say it is hard to run a race after you have just run a race.  Today's candle is a hanging man.  We have to watch that.  This fast move is often similar to the patterns they use in the textbook when showing the hanging man as a reversal candle.  The three days in a row of elevated volume could be some kind of climax buying event culminating with an exhaustion gap today.  Climax bottoms are common, climax tops are not in the general market.  They happen frequently in individual stocks.

The futures popped overnight.  After the open there was a significant move down to close the gap.  Buyers stepped in and sent the futures to a new high late in the day.

The green count is overbought again.

I thought SPX would get here, but I do not know what happens now.   In Daily update 4/30 I wrote:

"Technically the breadth data is strong and new highs are good.  The only question marks are from the other indexes.  The industrials and transports both need to make new highs.  Until that happens the possibility this is just a retest of prior peaks remains alive.  It would be good if R2000 and XLF continued higher as well. "

The problem children indexes are even worse now.  IYT, IWM, and XLF are all significantly below their late April highs. A failure to break out and continue higher by SPX should not come as a surprise.  Bulls would like to see SPX hold up while the rest of the market catches up and also breaks out.  However, the global economy is still struggling so that may not happen.  The possibility of a climax top exists.  A close below today's low in the next dew days would increase the probability.   I am in wait and see mode now.

I happen to catch Art Cashin this morning saying the global slowdown was starting to wash up on our shores.  He said if the global economy keeps slowing at the rate it has for the last two months we could be talking about a recession come year end.  That is exactly what I have been saying.  There is still a risk the economy gets into trouble until the global economy picks up again. 


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