Friday, June 20, 2014

Dow Theory special issue: Today’s volume for the S&P 500 has been very bearish

Intelligent money (whatever that is) seems to be dumping S&P stocks

While this doesn’t entail a primary bear market signal, nor (at least yet) a secondary reaction against the primary bull market, it certainly displays that something is brewing. Given that the S&P closed down, I’d say today’s huge volume might be indicative of, at least, a short term top in the making. Today’s volume in all the stocks that make the S&P 500 index has been the highest since 03/21/2014, as you can see on the chart below:

Volume shows something is brewing


Furthermore, my pet short term indicator (even primary trend Dow Theorists have “pet” indicators, even though we don’t really use them, unless we want to short term trade) the SPY volume/S&P volume ratio showed that volume in the real stuff (the stocks that make the S&P 500) has greatly exceeded the volume that flows to its ETF proxy the SPY. The ratio had today a reading of just 0.73 (which normally indicates short-term inflexion points). This is indicative that the selling pressure was not due to speculators (more prone to trading the SPY) but, rather, in the actual stocks. In other words, actual stocks belonging to the S&P 500 were being dumped with gusto, whereas traders (those favoring the SPY) were less keen on dumping the SPY.

Furthermore, this brings me to Thomas Vician’s blog “trendfollowingtrader” who, today before the open he displayed a good array of technical and sentiment indicators that show that the odds for a short term top are very high. The title of his posts says it all: “Full Bull-Tilt by Dumb Money and FullBear-Tilt by Smart Money”.

As I said, he posted his article before today’s open. Subsequent S&P 500 price and volume action reveal that something is going on.

Of course, this is kind of gossiping under a Dow Theory standpoint. If a short term top is being made, is immaterial to those aligned along the primary trend of the market. However, technical culture is technical culture and those passionate with markets cannot remain oblivious to some technical signals. I am a Dow Theorist, but, as Germans are fond of saying, we shouldn’t be “Fachidiot” (Idiot specialist).

Have a nice an reflective weekend.

The Dow Theorist

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