Tuesday’s Trading – 9/1/09

The good news of the Chicago PMI was sold at 9:45am on Monday, which is a potential signal that traders are using good news to unload inventory. The market has been shrugging off good news for a while now.

SPY finished strong with the help of XLF, however XLF still left a sizable gap behind, along with the other major ETF’s. So the close may only turn out to be a short-lived moral victory for the bulls.

SPY bounced as soon as it neared its August 21st gap, however IWM dove deep into its gap from the same day. The gap held, but IWM did twice as badly as DIA on the day, and the relative under-performance of the small caps demonstrates continued risk avoidance. DIA closed below its August 25th gap, so that is also a sign of weakness.

The IWM pierced its 20SMA, but was able to close above it. And the SPX held the 1014 area, so those are bullish factors.

Not only did the EEM close below its August 21st gap, but it opened a new gap overhead that is triple the size. That’s a statement. China may not have crashed our market, but it certainly has sucked the risk-appetite out of it. Two weeks ago, China knocked our market down in similar fashion and the SPX rebounded the next day and immediately ran to a new high. Maybe it will do so again, but China has proven that its problem was more than a hiccup, and maybe we shouldn’t expect the SPX to shrug it off so quickly this time.

The talking heads on CNBC were unanimous in their opinion of the Shanghai Index: it is a phony market populated buy fools and gamblers, and it has no bearing on the rest of the world’s markets. It sounds to me like the talking heads might be lugging a little bit too much inventory…

SPY rallied into the close on increased volume, as compared to Friday, but it was unable to eat into any of its morning gap. That is a sign of weakness.

The Advance/Decline line rolled over, and its pattern looks very similar to the pattern that it made at the peak in June.

A while ago, I mentioned that I didn’t have to wait in line at the barber on Saturday afternoons any more. Well, it isn’t just my neighborhood. It is a nationwide phenomena, and nothing screams recovery like people cutting their own hair, right? The Wall Street Journal thinks it’s funny, but if the USA is a service economy, and everybody starts to do their own services, where does our economy go?