Turn around Tuesday.. Breadth showing some bullish signs

Good morning. 

 

The correction is on.  

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The SPY has now pulled back 2.5% from the double tap at 122.95.  The game now is to look for a double tap at the bottom or strengthening breadth.  We did get some breadth strength yesterday based on that nice run up to the –1.5% line and for while I thought we were going to bust out to the topside, but intraday breadth around 2pm EST just melted away and the market was unable to hold its highs.

 

In Asia last night the Chinese Shanghai had a little bit of a meltdown itself closing down –4%. The Nikkei was barely down with Hong Kong’s Hang Seng was down about –1.4%. 

 

Europe put in a pile of inflationary numbers overnight and the gist of the data is that UK is under inflationary pressure with a 4.5% year over year retail price index and 3.2% YoY consumer price index.  Europe as a whole was a much tamer 1.9% year over year with core just up 1.1%.  We need to watch the UK.

 

The ZEW Europe sentiment numbers also came out and were quite bullish, but the US correction, China’s dive and the UKs numbers were not a match for Europe’s good numbers and the DAX finds itself down about -1% this morning and the FTSE in London is down about -1.7%.

 

In the US the inflation theme continues as PPI numbers are released at 8:30am EST.  These numbers are MoM and expectations are for .8% vs .4% last month with the core matching last month at .1%.  Anything higher puts the Fed on notice that inflation is brewing and should rally the dollar.  The weak Euro inflation number rallied the dollar overnight.

 

At 9:15am the Capacity Utilization Rate and Industrial Production numbers are coming out expectation is for an increase in both with utilization up to 74.9% from the previous month of 74.7%. At 10am NAHB (housing) market index is released and we will look for strength in this weak sector.

 

Quote of the day:
The truth is more important than the facts. – Frank Lloyd Wright

 

Chart

Score

 Day-1

Change

40 DPI

-6

-6

0

52 WNH

+0

-6

+6

10 DHL

-4

-6

+2

Total

-10

-18

+8

 

The breadth charts put in stronger scores but still weak.  Yesterday was an inside bar day, that is we did not set a higher high or lower low than the previous day,,so you would expect to lose some bearish sentiment in that case. The surprise was the 52 week new highs put in a stronger day despite a weaker high.  That needs to be monitored as a sign of a bottoming process.

 

 

$SPY chart:

 

The SPY continues to slip down that slippery slope of lower highs.  The developing gap this morning has us opening in the 119.40 area, below today’s bear line.   Look for a gap close to at least 119.78 and then the market  will decide if it is discounted enough to bring in the full buying power of the bulls yet.

 

If we sell off at the open watch 119.09 to hold.  A failure there will put 118.56 in play.  A capitulatory sell off this morning to the 118.56 area or lower should reverse and be bought aggressively by the bulls.  118.65 is the 3.5% pull back number which should temporarily satisfy the bears and attract buyers.

 

A opening rally to 119.78 to close the gap I will most likely short.  I will go long on a decent sell off looking for the powers of turn-around Tuesday to come in.

 

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