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Friday, August 9, 2019

Update 8/9

Nice oversold bounce yesterday.  It might have a little more room to go, but I don't think the sell off is over yet.

Yesterdays rebound saw a breadth reading of +80% which is good, but Monday's breadth was -90%.  That kind of negative breadth reading can be the kick off of a bear market.  The tip off that the bull  isn't over is when the bulls pull off a day with breadth above 85%.  The closer to 90% on the upside the better.

The futures ripped up through the 200 SMA yesterday.  They have not confirmed a break above that MA yet.  However, they dipped significantly below the 200 today, but were able to bounce back strongly.  That suggests there might be more upside in the short term.

The red count dropped back to near 50 and has worked off the extreme oversold condition from Monday.  The problem here is the intermediate indicator is below 50 again.  That usually means the first low will be retested and possibly exceeded.

If SPX gets through the 50 DMA then the 20 DMA becomes the next target.  If we get there I will reevaluate, but at the moment I don't think it will get much further than that.  There is no law that SPX must get through the 50 DMA either so we need to be cognizant that the market could roll back over without much more upside. 

I heard Bob Pisani today saying he thinks the next round of tariffs will get delayed.  He did not indicate why he thought that though.  I have not heard anything yet that makes me believe that will be the case.  I could be wrong, but I think Trump's patience is starting to get a little thin with Xi.  I think China will have to do something real to delay the tariffs and I have not seen anything that would indicate that will happen.

The big picture here is very troubling.  Last fall we had an internally weak march to new highs that looked like a terminal leg in a bull market.  That was followed by a really sharp sell off.  However, during all that the U.S. economy was still doing pretty well.  I think that allowed the bulls to get SPX back to a new high again.  The rally started strongly off the Dec. low, but the last leg up in June and July was internally weak again.  The weak sister indexes IYT, IWM, XLF still have not reached new highs. The U.S. economy is significantly weaker now than it was last fall.  The 90% down day on Monday might have been the kick off to a bear market.  It is important for the bulls to show some real strength sometime in the next few weeks to cancel out the current bearish looking setup.

Have a great weekend.


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