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Tuesday, July 15, 2014

Daily update 7/15

Another outside day.  At least volatility picked up a bit today.  Here is the daily SPX chart.

SPX came within 3 points of its all time high.  The Dow made a new intraday high, but fell a bit short of a high close.  There were 106 new highs (32 in SPX).  That is a considerable drop off from yesterday.  Breadth was 63% negative despite SPX being barely lower.  Volume picked up considerably.  The FED released a report that mentioned that certain sectors of the market have stretched valuations.  Is that news?  Really.  I guess some people thought so as the volume picked up on the down side.  We seem to be having trouble getting the launch off the 18 DMA this time.  We have touched it 3 of the last 4 days.  Will it break or take off to the upside?  Lets look at the futures chart.

We ended the day with a white bar.  This is the first time since the break out in May that we got green bars and did not make a new high before turning white again.  We seem to be losing some upside momentum.  It is pretty easy to turn down from this position.  Will the bears take a stab at it?  Lets take a look at the IWM daily chart.

IWM held the 50 SMA today, but it is not looking all that great.  I still believe what happens to this ETF is important.  The SPX break out to new highs in May happened only after IWM found a bottom and started to rally.  A bounce from here could help the other indexes get to new highs again.  However, if this thing does not break out itself I don't see the rest of the market going very far.  This sector is in bubble valuation.  It is so bubbled up even the FED has noticed.  I think it is going to be very difficult for this ETF to break out and keep going.  I guess we will see.

What happens over the next few days will likely be earnings driven.  Will they be good enough to justify the current high prices?

Here is an interesting chart from Japan. 

They embarked on a massive money printing adventure in late 2012.  That caused a big crash in the currency.  That helped with exports and boosted the economy initially.  However, there is one serious problem.  Japan imports a lot of food and energy.  The currency crash greatly increased the prices of those imports.  As this chart shows the net result was a lot of inflation with no real increase in wages.  This is not making the people happy and is starting to have a serious negative impact on their economy.  Recently machine orders  dropped 19.5% month-over-month the biggest drop ever.  They are now talking about -4% GDP for the second quarter.  Of course the tax hike in April only made the situation worse.  Given the size of their economy their money printing operation is larger then ours.  I guess it is not working particularly well.  I am sure Paul Krugman will say they just did not print enough.  For some reason my little brain just can't grasp the concept of printing and spending your way to prosperity.  If only I was just a little smarter maybe I could understand.

Germany is starting to slow down of late.  China is dealing with huge credit market problems that is surely going to cause a slow down.  I don't really know how strong the U.S. economy is.  I am sure it is not nearly as strong as the pundits would have us believe.  If the global economy slows down significantly the U.S. will also.  We are too interconnected these days.  There is no escape. 

I downgraded the R2000 intermediate trend to neutral today.  It is back negative on the year so kind of hard to say it is in an uptrend.  I should have initialized the table that way.  I just did not really think about it with all the other indexes clearly going up.


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