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Tuesday, September 24, 2019

Update 9/24

The market took a bit of a dive.

The combination of poor economic data and Trump giving a speech that was tough on China trade at the UN caused a bout of selling.  The breadth was -66%.  SPX closed just below the 20 SMA.

The futures ended the day below the 50 SMA.  A confirmed break should indicate the market is in pullback mode. 

The red count crossed above the green line and is above 50.

The 10 DMA breadth lines are right on top of each other.  The volume lines have a negative cross.  The McClellan oscillator is in the red.

The short term and long term bull pressure lines have a negative cross.  The mid term lines are still positive.

There are plenty of negatives in the market internals.  The bulls probably have one chance to save the market from a pullback.  A close below today's low is likely to bring out the sellers again.  This latest bounce was driven by head lines which did not lead to any accumulation in the tick indicator.  There has been no accumulation since back in July.  The ticks came close to a distribution signal today, but did not quite get there.  The bears can take control here if they desire.

I believe the market is holding up well against weak economic data on hopes of a trade deal with China.  I think such a deal to be extremely unlikely before the election.  The market keeps going back and forth on whether a deal is likely or not.  Any positive news causes a big rally and any negative news causes a sell off.  We have no idea what the next headline will be.  The global economic data continues to weaken.  A global recession is definitely looming large if things don't turn around.  So far there has been no sign of that happening.  This is a very strange situation.  Since WWII global recessions have largely been caused by the U.S. economy showing weakness first.  They used to say when the U.S. catches a cold the rest of the world gets the flu.  This reverse order is what I have been afraid of since the 2009 low.  U.S. investors monitoring the U.S. data think everything is still ok, but we could get dragged down by the rest of the world this time. 

The weak sister indexes IYT, IWM, and XLF are still lagging behind.  There are enough internal divergences that we could be looking at a very important top if the market sells off here.  I thought so last fall and there was a significant sell off.  However, the economic data was still good last fall and investors bought the dip.  The economic data is much weaker this time with the last ISM manufacturing number below 50.  The global data is much weaker than it was last fall.  If the market takes another big tumble like late last year I don't think it will be coming back so fast this time.


Friday, September 13, 2019

Update 9/13

Test of the highs.

SPX formed back to back doji days.  Breadth was slightly positive yesterday, but -54% today.  New highs were 89.  They peaked back on 9/4.  New lows have been 25 or less on this rally.  They are well contained because this year's laggards have been big winners on the rally.  The money has been coming from this year's big winners which is why the new high numbers are muted.

The futures made it up to an area of congestion from back in July.  A stall here is normal.

The green count has dropped out of overbought and remains well above 50.  The intermediate indicator recovered strongly.

Based on the normal market internals things look fine.  Breadth is good and the intermediate indicator climbed well above 50 which usually means the correction is over.  With the advance/decline line at  new highs SPX should do the same.  I have questions about what happens after that though.  Last week I talked about tick buy and sell signals.  That really was not a good name.  It is more appropriate to talk about accumulation and distribution signals.  I am busy putting the signals on an SPX chart so I can study them better.  Since this rally did not trigger the accumulation threshold I had set I started looking at an almost signal.  For accumulation a green up is a full signal, a yellow up arrow is an almost signal.  A green up arrow with a circle on it is a very strong accumulation signal.  For distribution the red down arrow is a full signal, a light red down arrow is an almost signal.  A red down arrow with a circle on it is a strong distribution signal.  In my studies I find these signals are sometimes buying and selling climaxes.  Sometimes accumulation signals happen on down days.  The distribution signals sometimes happen on up days.  Some days have both signals.  Those are few, but they do happen.  Without further ado here is a look at the signals for about the last year.

The low last Dec. was followed by 4 strong and 2 regular accumulation signals as the big boys piled in.  We have not had an accumulation signal since 7/18.  Since that time we have had 1 strong, 3 regular, and 1 almost distribution signals.  I have put the signals on the chart back to the middle of 2012.  I can tell you that this pattern is different than any I have seen.  When SPX spends time like it did below the 50 DMA there have always been accumulation signals.  Since the Trump tweet about additional tariffs there have been no accumulation signals at all.  This rally happened on news headlines and we know those moves are often retraced.  The headlines did not move the money managers to pile in so the odds of retracing this move are probably pretty high.  I would not expect that to happen until after the FED cuts rates next week though.  SPX could easily make new highs before that.  If we start seeing distribution signals again then the recent low might be in jeopardy of breaking.  For now the bulls are in control so we wait and see how far they want to push things.

Have a great weekend.  Peace.


Friday, September 6, 2019

Update 9/6

SPX broke out of its recent range yesterday and held on to those gains today.

SPX needs to close above yesterday's high to confirm the break out.  The breadth yesterday was only +64% which is not particularly strong for a break out.  The volume was decent, but nothing to write home about. 

The futures are free and clear of their MAs.  However, they are in an area of prior congestion.

The green count has now reached overbought levels.  However, the intermediate indicator is still below 50.  Not quite an all clear here yet.

We got close to a tick buy signal on 8/28, but not quite.  Almost signals sometimes see follow through, but all big moves that I have studied all had a full signal.  I suspect this rally is not the start of a big up move.   You might recall the down move started with a Trump tweet about new tariffs on 8/1.  As we know news induced moves often get retraced.  That could be what is happening here.  SPX has now reached about the middle of that day's price bar.  Yesterday the market rallied for about an hour after the open.  It has been sideways since with what looks like pretty stiff resistance near the highs yesterday and today.  I would bet a lot of that first hour buying was short covering.  I do not have any evidence a big move to the upside is under way, but we could still retrace the rest of the move up to the 3000 area.  One problem is that this move is also on news.  The first day was on the Hong Kong government killing the bill that started all the protests they have been having.  That was followed the next day by news from China that they had agreed to trade talks.  Are those news moves going to be retraced?  The down move was about tariffs which did actually go in effect and was real fundamental news.  The up move is based on talking and is not fundamental in nature. 

For bulls the question is whether the .25 rate cut coming from the FED mid month will be enough to propel the market higher.  That is about all the bulls have in their pocket.  The global economic data this week was very weak.  Even the U.S. ISM manufacturing number dropped below 50 (into contraction) for the first time since 2016.  There was also bad news out of India which has been a bright spot in the global economy. 

A full buy signal will change the outlook.  Without that I don't think SPX is headed for a break out and a significant move up.  It might make new highs here, but with the market short term overbought I don't think that is a guarantee.  A close by SPX back below the 50 DMA would signal a failed upside break out and could bring out some sellers.  Until that happens the bulls have the ball lets see how far they decide to run with it.

Have a great weekend.  Peace.



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