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Tuesday, May 26, 2020

Target hit 5/26

SPY closed the gap at  300.

SPX opened above the 200 DMA and stayed there until a sell off in the last 30 minutes.  This is a logical place for short term traders to take some profits.  Some kind of pullback or consolidation would be normal.  I don't believe we will close that last gap for quite some time.  The economy is clearly not going to be able to get back to where it was in Jan. for a considerable period. 

The green count reached overbought levels today.  The short term indicator is also in the overbought area. 

The FED liquidity caused a lot of buying, but the momentum has clearly slowed.  I think upside progress from here will be tough to come by.  I saw some option data that suggested retail investors were heavy buyers on this rally.  The Robinhood brokerage also put out some data suggesting the same thing.  In that light the AAII sentiment survey is pretty interesting.

The number of bears in the survey is still very high at 45%.  Investors are not particularly bullish.  Was a lot of the buying from retail traders rather than investors?  If the bulk of the buying since the bottom is from short term traders we will most certainly retest that low.  We could see some turbulence now that the 200 DMA has been hit, but not necessarily a roll over into a retest of the low right away.  There could still be plenty of dip buyers out there.  Until SPX breaks the 20 DMA swing traders should still be looking to buy dips. 

A lot of people are wondering if we are back in a bull market or not.

For the answer to that question we can look at the bottom panel at the long term bull pressure lines.  The green line needs to hit the blue line to signal a bull market.  There is no all clear sign here.  What does the monthly chart tells us?

I wish I knew!  Since Jan. 2018 it is possible SPX is tracing out an expanded volatility top.  However, it is still above the trend line from the 2009 low.  It also looks like SPX will close back above the 20 SMA.  A retest of the low will clearly end the bull market.  Since we just had the longest bull market in history is it logical to expect it to keep going up while the economy is in recession?  Since we just had the biggest crash in employment in history is it reasonable to expect everybody to be hired right back and for the recession to have an imminent end?  Is it reasonable to expect some businesses will not reopen after this economic shutdown?  We could see a wave of defaults that causes pain for markets.  Commercial real estate is of particular concern.  Since I do not have an all clear sign at this time I am very cautious longer term on this market.

Peace and good health to all.


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