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Tuesday, December 23, 2014

Daily update 12/23 Dow 18,000 plus dark side of oil price slide

The Dow closes above 18,000 for the first time.  Art Cashin had his hat on to celebrate the event.  With that out of the way we can get on to the normal business of the market.  That would be moving straight up of course.  Here is the daily SPX chart.

The market gapped up on better then expected GDP.  Apparently 2/3 of the increase in GDP from the last estimate was spending on Obamacare.  Did that raise everybody's standard of living?  Don't forget that spending was originally in the Q1 data, but was later removed and now added to the 3rd quarter.  It sure makes you feel really confident in the GDP data doesn't it.  It is subject to such huge revisions even years later that it really is pretty nearly useless in real time.  But I digress. There were 304 new highs and 24 new lows.  Much better on the new highs.  The question is will they be able to stay there.  The volume continues to be low on this holiday week.  The intraday price range also continues to contract.  The breadth was 62% positive which was rather strong for the small move in the indexes.  Lets take a look at the futures chart.

After gapping up at the open the futures found their high right away and chopped around all day.  There was a bit of selling into the close.  So far they have held completely above the 6 SMA.  Zero selling pressure.

This is an interesting article The buzz: Bartiromo on plunging oil's fallout  I found these two snippets particularly unsettling.

This is a major issue because since December of 2007, shale oil states have added 1.36 million jobs while non-shale states have lost 424,000 jobs.

The oil and gas boom has added $300 billion to $400 billion annually to the economy. Some argue that without that boom, GDP would have been negative and the country in recession.

I don't know if the GDP would have been negative without the oil boom.  However, the numbers make it clear that it is the reason we are the so called cleanest dirty shirt.  The slow down in the drilling will have a considerable negative impact next year.  Therein lies the trouble.  While the cut in energy prices is good for consumers that benefit is spread out over the long run.  The trouble with the over leveraged energy companies will be felt very quickly. 

Another issue that has been ignored by the market is the rise in the dollar.  The DXY is now at levels not seen since 2005.  Some international companies have been warning of drops in revenue and earnings for the 4th quarter.  Lots of things going on while the market floats blissfully up for the holidays.  Enjoy.


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