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Friday, July 25, 2014

Daily update 7/25

It seems like the number one sport these days is bear bashing.  They had quite a bear bashing party on CNBC this afternoon.  I have seen many articles with more of the same.  It is reaching a crescendo rarely seen in my experience.  The majority of market participants are so sure of the trend they feel it is safe to chastise non believers.  This is not a new phenomenon in market history.  However, it most often shows up at primary trend changes.  In Signs of a bull market top   I wrote "1. Sentiment - The one element that occurs at virtually every top is a very common belief that the market can only keep going up.  This is largely caused by the market ignoring everything that should be causing it to go down."  We have this item in spades.  I have heard lots of comments about how the market is ignoring this or that and just keeps going.  There are two times when the market tends to do this. One is at the beginning of a bull and the other is at the end.  Which do you think this one is more likely to be?

The bears won the day.  Here is the daily SPX chart.

Volume dropped off considerably with the slight down opening.  There was no panic selling.  This looked like a buyers strike more then anything.  SPX is still above the 18 SMA, but touched it yet again intraday.  The break out to a new high failed.  New highs dropped down to 90 just one day off a new high close.  Very weak numbers yet again.  Lets have a look at the futures chart.

The futures ended the day below the uptrend line again.  So far this month they have bounced from around that line twice.  Each time we had blue price bars indicating price was extended.  We do not have that condition this time.  I think the odds are higher there will be down side follow through this time.  The apparent W top is still valid and is starting to look more likely to play out.  As always follow through is key and the break of the trend line needs confirmation.

Both SPX and the COMPX failed their break outs to new highs today.  I had to down grade their short term trend status to neutral by removing the upside bias.  I also changed the primary trend for the Russell2000 to neutral.  Lets look at the weekly IWM chart which closely matches the index.

We have a possible triple top even though each top is slightly higher.  This is nearly a 7 month formation now and price is back below the first peak.  This is clearly a formation that could be an end to the primary trend.  The move into this formation is very straight up.  There really isn't any other major low anywhere nearby to use as a sign the trend has changed.  If IWM breaks that May low marked by the green line it is entirely possible its primary trend will be turned down.  For that reason I believe it is prudent to give the current primary trend status a neutral rating.

The current sentiment and technical picture is very consistent with a bull market top.  The last few days on SPX really, really look like trouble with the narrow range and increase in volume.  They would make a perfect bull market final high pattern.  The major indexes are masking very weak market internals.  If this market gets going on the downside it could pick up considerable speed.  I think we all know how the market can flip a switch and act in a completely different way.  This is a setup for such a flip.  Be careful.
The July initial jobless claims data is often very flaky.  This is caused by the automakers often shutting down production at some time during the month.  However, the duration of the shutdown varies from year to year.  I was going to look at some charts to demonstrate this when I noticed something a bit odd.  Here is the seasonally adjusted chart.

Notice how the claims have been falling lately.  They are also making lows below the low print in 2013.  Now look at the non-seasonally adjusted data.

This week did not produce a new low for the year.  That is not all.  The claims are actually running higher then the low point from last year.  It appears they have flattened out rather then continuing to fall this year.  This paints a somewhat different picture then the seasonally adjusted data.  This is another piece of data that calls into question whether the economy is as strong as the pundits proclaim. 

This came from Visa after yesterday's earnings report.

In a conference call with Wall Street analysts, Visa's Chief Financial Officer Byron Pollitt noted that the company is guardedly optimistic that the slowing of cross-border volume growth has bottomed.
"In short, we are approaching 2015 bullish on the long term but cautious in the short-term," Pollitt said. "While we expect U.S. and international payment volume growth to remain healthy, we have not yet seen acceleration in global economic growth."

I keep seeing comments from retail companies talking about lack of sales.  Visa obviously is a broad barometer of retail activity that is not store specific.   Its stock topped back in Jan.  While the weather has warmed up it is not so clear the consumer has.  The stock chart of MA is showing the same pattern so it is not specific to Visa.  The U.S. consumer is a big part of the economy and there are real questions surrounding their spending at the moment.  I said this not long ago, but I will repeat.  The data is mixed enough that it is impossible to say that we are not in or about to be in a recession.  The only way one can say that we are absolutely no where near a recession is by cherry picking the data.  The most common cherry picked data I have seen is employment and ISM manufacturing data.  Both of those items have been proven unreliable indicators of future economic activity.   Employment data is heavily revised and used to be referred to as a lagging indicator.  People seemed to have forgotten that these days.

The market and sector status pages have been updated.  Have a great weekend.


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