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Friday, December 19, 2014

Daily update 12/19 Odd ECRI data

The chase continued today.  SPX got within 1.5 points of its all time intraday high, but could not hold on for a new high close.  Here is the chart.

That is some snap back rally.  Does this chart look stable to you?  While bullishness is running rampant the market internals are weak and the price action is very flaky.  It has caught the attention of the BIS.  They had this to say.

The downturns were triggered by uncertainty over the global economic outlook and monetary policy, as well as geopolitical tensions, and the (BIS) said the sharp and sudden dips pointed to frailty in the markets.

"These abrupt market movements (in October) were even more pronounced than similar developments in August, when a sudden correction in global financial markets was quickly succeeded by renewed buoyant market conditions," the said in its quarterly review.

"This suggests that more than a quantum of fragility underlies the current elevated mood in financial markets," it said, adding that recent developments suggest markets are becoming "increasingly fragile".

"Global equity markets plummeted in early August and mid-October. Mid-October's extreme intra-day price movements underscore how sensitive markets have become to even small surprises," it said in the report.

The BIS also warned of possible problems in the summer of 2007 before things fell apart.  They were certainly right then.  They have issued several warning reports over the last few months.  This is not a fly by night operation or perma bear group.  This is the central bank of central banks. 

Lets take a look at the futures chart.

The futures made a slight new all time high even though SPX did not quite make it there.  They sold off a few more points after the close.  They area really, really stretched from the 18 SMA.  I think it will be hard to find chasers next week.  Some consolidation seems likely.  Lets have a look at the IWM chart.

IWM closed above its recent trading range.  Not exactly the prettiest of break out bars is it.  Will they push it higher next week or not?

I found this chart rather interesting especially in the context of the current market environment.

Up until 2011 the ECRI had a fabulous track record of calling the starts and ends of recessions.  Their weekly leading index has had a good record of showing future economic growth even when not in recession.  From years of study I know when the bigger corrections occurred in SPX.  In looking at this chart I can see that the bigger negative spikes in the WLI growth rate have corresponded to those corrections.  That was certainly the case in this bull market with negative spikes in 2010 and 2011. There was a smaller one in 2012 that also was associated with a near 10% correction.  While everybody is crowing about how the economy is accelerating this indicator is showing the opposite.  I have been watching this for several weeks wondering if it was going to turn back up.  However, this week it slipped to new lows.  This is the first time it has been negative since 2012.  The stock market is a component of their index and I think some of those bigger negative moves were actually caused by bigger corrections in stocks.  With stocks near highs that is clearly not the case this time.  I would expect this must turn up soon or the economic data is going to weaken.  I am not really sure what exactly is going on here.  Economists are all screaming how good the economy is doing.  The divergence in the market internals might make sense if the economy is actually going to slow down.  That would also make the rapid drop in the price of oil make more sense.  Stay tuned.

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


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.