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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.


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