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Wednesday, July 9, 2014

Daily update 7/9

It looks like the overnight news permitted the expected bounce today.  Here is the daily SPX chart.

SPX found resistance at yesterday's high.  There were 108 new highs (24 in SPX).  That was much better then yesterday, but not enough to give us an all clear.  Lets take a look at the futures chart.

The futures found resistance at the 18 SMA.  This chart is still neutral.  Does resistance hold or do the bulls break through it tomorrow?  So far this looks just like the last bounce off the 50 SMA.  It rallied up to the 18 SMA then rolled over for another tap of the 50 before moving up to new highs.  The last two days this chart gave us a clue of what might happen the next day.  It is not so clear tonight.  There was a late day rally to new highs on the day after the FED meeting minutes came out at 2 PM.  I have commented on how often those moves are reversed, often the next day.  So we hit resistance on a news induced move.  It is not hard to imagine the market might retrace some or all of that move.   Lets take a peek at the IWM chart.

Despite being seriously whacked the last two days IWM was barely up today.  This is a good risk on indicator and it was not much risk on today.  The bulls are going to have to do better then this to keep the market going up.

This was a tough day to analyze.  The COMPX and IBB showed relative strength to SPX while IWM showed major relative weakness.  The futures are at resistance.  Will it hold tomorrow or not?  Tough call.

I often hear the pundits in the media claim that we always get an inverted yield curve before a recession.  However, since I have studied a bit of market and economic history I know that is not the case.  Here is a nice chart that show the facts.

This also applies to other versions of the yield curve like 2s and 10s, and 5s and 30s that are sometimes used.  This has also been the case in Japan for the last 20 years.  They have had a number of recessions without having an inverted yield curve.  It makes sense right.  You don't get short term rates near zero unless there is something seriously wrong with the economy.  The problem of course is too much debt used for consumption.  The next recession in the U.S. is most unlikely to have an inverted yield curve signal.  It will catch many people by surprise just as it did in Japan.  If you just sit back and observe the Wall Street pundits with a clear understanding of history you will actually find it quite amusing.


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