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Wednesday, August 19, 2020

A little tired 8/19

SPX finally made a  new closing high yesterday, mission accomplished.  Today SPX tested a bit higher early in the day before selling off late after the FED minutes came out at 2 PM.  I do not know why that sent stocks lower.  What I do know is breadth and volume are showing this last leg up in the market is weak internally.

There are a lot of open gaps left below.  I can't imagine this market rocketing higher without closing something down there.  There wasn't much enthusiasm to buy the highs today.  We will have to see if the bulls get more ambitious over the next couple of days.

The red count crossed above the green line today showing internal weakness.


Both the short term bull pressure lines (top panel) and the long term lines (bottom panel) have negative crossovers.  This chart clearly indicates the market has been under distribution for the last several weeks.  It is very rare to see a negative cross on the long term lines with SPX at an all time high.  At the Oct. 2018 high the lines were barely positive.  Price action tends to be sideways or down after a cross at the high.  In the past, it took a 5% or more pullback or a strongly positive event to reignite the bulls.  If the market continues higher from here, I would expect the first pullback would come back to around this level.  

The sentiment data is a bit interesting.  Let us look at the NAAIM survey (active money managers).  This survey is based on actual positioning, not on the outlook for the market.

The money managers are the most long they have been in the last two years.  Doesn't that strike you as odd in the middle of a recession?  Generally, upward progress is slow to come by in this condition, but the market usually moves higher over the short term.  What is really odd to me is my bull pressure indicator.  It usually shows a lot of strength when this survey is heavily long.  I am not seeing that this time.  It looks like the market is under distribution, but the active money managers are not the reason.  The data shows individual investors are buying stocks right and left, they are not the reason.    Is it so called smart money doing the selling?  If that is the case we could have serious trouble ahead.  Stay tuned.

Thanks for the cartoon sunny!

Peace and good health to all.



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