The S&P500 is on track to beat last years gains and we still have 9 months to go. The bull in me would love to see more gains. YTD the Big Cap 500 is up 5.975%.
These figures are pretty impressive, considering 2016 narrowly missed closing +10% for the year. The S&P index needed to close at 2,248.33, to record double digit gains. Unfortunately, the closing number was 2,238.83. To put this in context, the index currently has four positive years in the past five. My immediate question is obvious. Can we make it five positive years out of six? Maybe.
Thursday recorded the sixth straight day of declines. Midday price bounced at the benchmark 20sma. Without projecting a direction, or getting into an extensive analysis, we just wanted to point out a few observations. We will update members with additional thoughts in the Sunday Video.
Price did bounce, however Bollinger Bands are collapsing post haste. This leads us to believe we could stick to this zone, as a best case. The similarity with December, when the bands last began to compress is noteworthy.
Crude closed lower on Friday, marking its first big move in over 15 weeks. This is significant. Each week we reminded subscribers that price action and volatility were compressing. Over the past 15 weeks, price stuck to the 9ema. We felt the tight price action would signal a direction, in short order. Thursday was important for MACD, as it triggered a long duration “Appel Sell Signal” a very important momentum signal. Reference the signal produced in DEC-2014 and resulting decline that followed.
Crude and the Junk Bond Correlation
Bonds in the energy industry group make up a sizable portion of the $1.4 trillion dollar junk-bond index. On Thursday, Bill Gross was quoted saying the “highly levered financial system is like a truckload of nitroglycerin on a bumpy road.” Meanwhile, junk-bond funds posted the biggest redemptions since November. Correlations with the drop prior to the November elections issued a caution signal a week ago. The indices promptly followed; putting the concept another way, junk bonds led the decline.
Note the “Appel Sell Signal” on Junk. While volume did ramp higher and reflect a “green bar” on Friday, look at the closing numbers (0.00%). Really? Zero? And, we attempted a test of the overhead 50sma. Targets are shown, 1) ascending trend line and 2) Volume by Price support (look left).
The indices bounced, yet crude and junk moved lower?
While we are not in the business of making predictions, the current correlations and price action suggest we enlist prudence in the short term. This cloud will hang over our investing decisions, until the all-clear signal is sounded.
Cousin Vinny – Head Trader at The Closing Print)
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