Daily update 2/27 What a miss on the Chicago PMI

It looked like nobody wanted to do anything of consequence today.  Lets look at SPX.

SPX is still above the key 2100 level, but not by much.  Breadth was slightly positive despite most indexes being down.  New highs dropped down to 121.  They continue to lose momentum.  While we did get downside follow through today SPX did not close below yesterday's low.  We don't have confirmation of the  potential reversal pattern of the last two days.  Here is a look at the futures chart.

The futures had another narrow overnight range.  They tried to break that range on both the upside and the downside during the day, but got rejected in both directions.  We spent most of the day trading between the 6 and 18 SMAs mentioned last night as key levels.  They slipped below the 18 at the close.  However, the break needs confirmation with a lower close.  The last time they closed below the 18 for one bar then rallied strongly.  This is the first time on this rally we closed below it and the DI lines had a negative crossover.  Whether that makes any difference or not remains to be seen. 

The bears are trying to get a grip on the market.  SPY closed below the hourly 50 SMA for the first time on this rally.  The futures are in a position to head south.  It all depends on how people feel on Monday.  The market really tried multiple times to rally today, but each bounce was eventually sold into with more force then we have been seeing lately.  The bulls still have a chance to stave off the pullback on Monday.  However, with SPX only 4 points above 2100 there is not much room for error.  The more important level is the 2090 area from the Dec. high.  If SPX breaks below that we have a failed break out and will probably bring on some more selling.  In reality 2100 is just a round number and is only psychologically important.  The 2090 level is a key technical level.  So we will see what happens next week.

In the middle of Jan. I wrote about the global economy slowing and showed the leading economic data from ECRI that indicated the U.S. was also slowing.  We saw that today with the Chicago PMI with a huge miss.  Here is the chart.

This is the first time it has been more then just fractionally below 50 since we came out of the last recession.  Traditionally this index has been more about the auto industry then anything else.  I had noticed it having unusual strength the last couple of years.  Apparently this index is highly influenced by oil drilling these days.  The energy companies have been idling rigs like crazy so it was only a matter of time before it hit the data.  It seems highly likely this will lead to layoffs in that area.  This is also likely to drag down the national number on Monday at least a little.  I wonder if a big miss on the national number would inspire people to buy stocks on the theory the FED will wait longer to raise rates.  At any rate we are starting to see the negative affects of the oil price drop.  It may get worse before it gets better.

I am starting to hear people talk about the drop in earnings projections.   Investors are staring to notice.  It remains to be seen if they do anything about it or not.

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

Bob

Daily update 2/26 NAAIM survey fully loaded and more on earnings

That was a rather mixed day.  IWM and QQQ were relatively strong while IYT and XLF were weak.  Lets take a look at SPX.

The doji bar yesterday was followed by a hanging man today.  David Elliott called this combination “The Shanghai Duo”.  It is a little known and rather rare pattern that sometimes marks significant turning points.  Volume increased again today.  Looks like back to back distribution days here.  I think that means we should definitely pay close attention.  As with any pattern downside follow through will be key.  Here is a look at the futures chart.

The futures tested the 18 SMA and held today.  However, the bounce stopped at the 6 SMA.   That leaves us in limbo.  Will the bulls show up and pull the iron out of the fire again?  Will the bears pounce now that we have a possible short term topping pattern?  There is only a 5 point range between the two MAs so one of them is likely to get broken tomorrow.  Notice the DI lines had a negative crossover today.  This is the third cross on this rally.  The last two were bounce crosses where the futures bounced immediately after the cross and got a positive crossover again.  Will that happen again or will the bears get control at least temporarily?

The power is up for grabs here.  The bears are trying to get a grip.  If we follow through on the downside tomorrow we should be in pullback mode.  The bulls have to prove they can conquer SPX 2020.  We know there was resistance there.   Oil had a weak day, but is still within its recent trading range.  More weakness tomorrow could be a damper for stocks.  It has been very volatile so no telling what it will do.  Just something to watch out for.

The latest NAAIM survey shows the active money managers are fully loaded.  Here is the chart.

At 99 this week it is in the stratosphere.  It has not been this high since late 2013.  From outright panic in Oct. to fully loaded on the long side now.  When the survey gets this high the market usually struggles on the upside.  The fuel gauge is low.  If some kind of catalyst causeing widespread selling emerges the down side has plenty of fuel.

Here is another look at the earnings picture discussed in yesterday's update.

Source
This is a look at the 3 month change as opposed to the 6 month change I showed yesterday.  This chart covers one more recession.  The result is the same in that the change has never gone this negative in the last 35 years without there being a recession.  As the economic data has often missed expectations lately it is best to keep an open mind. 

What a difference a year makes.  About this time last year there was lots of bubble talk and some were talking about the possibility of a 15-20% correction.  Today the talk on TV was about the market melting up.  The only bubble talk was about reassuring us that the COMPX (approaching the 2000 high) is surely not in a bubble this time.  One blogger I read spent all last year talking about all the signs of a top and went short in the spring.  After holding short the rest of the year he covered those shorts on this break out.  There just aren't very many bears left in the world.  It is simply a given the market is going to keep going up.  A lot of people are going to be surprised if it doesn't.  The fundamentals appear to be crumbling right in plain sight.  I think this is what finally gets the bears to capitulate.  When the market keeps going up in the face of poor fundamentals they give it up.  Of course that is usually about the time the bull market ends.  There are lots of things wrong here.  It is not a given the market is going to keep going up.  Stay on your toes.

Bob

Daily update 2/25 Projected revenue and earnings drops

SPX ran into a few sellers just below 2020.  Here is the chart.

SPY closed with a near perfect doji bar so the apparent doji in SPX is real.  Volume increase slightly today.  A doji bar after a big run up on increasing volume is a bit of a caution flag.  The rally may be running out of steam.  Today was the first real selling pressure we have seen in over a week.  It didn't last long though.  There was real and present resistance today at 2020.  How strong that resistance is remains to be seen.  Despite making a new intraday high new highs dropped from 192 yesterday down to 153.  Not the sign of a market gaining strength.  Lets see what the futures chart holds.

The overnight range was once again extremely tight.  The world must have a very odd calm in the news flow at the moment.  The futures remain very extended from the 100 SMA.  Not much more to be gleaned here. 

It looks like we have found resistance on the upside at 2020.  We still have 2100 to watch on the downside.  In between price action is likely to be sloppy.  The transports and financials still have not made new highs.  I believe at least one of them must do that to help validate the move in the other indexes.  They are important cogs in the wheel.  Will today's pause be met with buying tomorrow?  Will the bears try to pounce after the market found resistance at 2020?  I usually know what questions to ask.  Now if I could just know the answers.

Here are some interesting charts on projected revenue and earnings this year.

Source

This is the first time in this bull market the YoY revenue is expected to decline.  Obviously the dollar and oil are playing a big part in that.  Will high market valuations hold up if the projected revenue decline turns out to be real.

Source

In the last 30 years the 6 month change line has only been this negative three other times.  All three times were associated with a recession (1990, 2001, and 2008).  Maybe it is different this time.  Maybe it isn't.  I am not smart enough to know.  The global economy is clearly weakening.  So far this year 20 central banks have taken easing actions.  At least a few of those were big surprises.  The global economy could be headed for a recession for all we know.  That would make sense with the collapse in commodity prices.  We need much more economic data to be able to figure that out.  Just be aware that could be the case.  I doubt the U.S. will decouple from a global recession.  If there is one thing we have learned in recent years is that the global economy is more connected then ever before.

Bob

Daily update 2/24 Equity / money market asset ratio

Yellen told us it would be June at the earliest before rate hikes would begin.  That was enough to entice a few buyers to chase price.  Here is a look at SPX.

Not much new to say really.  The slow creep up continues.  Will it end with a splat like in Dec. or will it be different this time?  Here is a look at the futures chart.

The futures had an extraordinary low range of only 3 points overnight.  We are getting very extended from the 100 SMA now.  So far nobody has been anxious to sell so up we go.  Not much new here either.

I am still going to be watching SPX 2100 on the downside. 

This is an interesting chart. 

One thing this chart shows is that people are heavily invested in equities even if Wall Street keeps trying to convince everybody otherwise.  I have disproved the most hated bull market in history meme a number of times.  This is just another bit of proof.  Looking at the history of this indicator it appears to be flashing a caution sign.  It would appear some people are taking money off the table.  With many indexes at new highs it is not out of fear.  Is that smart money selling at the highs?  It is rather interesting to say the least.

I mentioned last night that complacency is high.  I actually heard a guy on TV mention he was wondering how many 4-7% pullbacks it was going to take before people figure out that is all the market is going to go down.  Sometimes I just have to laugh at some of the things I hear.  Bullishness seems to be running rampant. 

Bob

Daily update 2/23 Asset allocation data

That was a rather boring day.  Neither buyers or sellers were motivated much.  Lets have a look at SPX.

Another very narrow range day on light volume.  I mentioned early last week the slow creep up pattern may be forming.  Outside of Friday on the Greek news that has been the case.  In Dec. that slow creep up pattern ended with a splat.  That is what usually happens.  SPX came within a hair of Friday's high and turned back.  There still appears to be a lack of buying interest up here.   The pattern should persist until something comes along that motivates the sellers.  I can't predict that.  Lets see what the futures chart holds.

The ADX lines are all coming together indicating the current trend has pooped out.  We are consolidating and getting ready for the next big move. 

Since the summer of 2013 SPX has been bouncing off the 100 DMA and making slight new highs.  It then proceeds to spend varying amounts of time at the highs before falling to the 100 again.  Rinse repeat.  The only time the 100 failed to stop the decline was the ebola scare in Oct.  However, this last time it took multiple attempts to get this rally going.  The complacency that we can only go higher is so thick you can cut it with a knife.  How much higher we go and how much longer we stay above the Dec. high I do not know.  However, based on past history I will be pretty surprised if we don't end up making another dive down to the 100 that takes us below that high.  This rally does not look particularly strong to me.  The volume in some of the ETFs like IWM is extremely light.  For now I am watching SPX 2100 on the down side. 

I saw this interesting chart today from Weekly Market Summary . 

Here is what they said about it.

Fund managers are demonstrably more confident in the rally. Driven by Europe, fund managers surveyed by BAML now have the fourth highest allocation to global equities since the rally began six years ago. Similar instances since 2007 are highlighted (green). There has been a clear tendency for equities to struggle in the next month, or longer. The most recent similar case was in July: SPY moved sideways for a month before declining 5% in early August (chart from BAML).

While not a great market timing indicator high levels have been followed by price weakness at some point where price was lower then when the condition occurred.  The only exception to that on this chart was in mid 2013.  The market never corrected back to that level to date.  That is interesting, but that is not the only interesting thing I see in this chart.  Look at how the high allocation conditions occurred.  Every other one was preceded by a pretty strong move up that had SPX well above where it was a few months earlier.  Between the last two conditions marked in green we have essentially been in a trading range.  Price is only marginally higher then it was back in July.  When allocations were rising strongly since 2009 SPX was also moving up strongly.  Apparently the U.S. stock market is no longer the place everybody wants to be.  I would guess we are still at risk of another correction from this condition though.

Bob

Daily update 2/20 Oil inventory and production

News of a verbal agreement with Greece sent stocks higher.  Lets have a look at SPX.

SPX tested support for the 4th day in a row and bounced weakly at first.  However, news on Greece came out mid day and sent the market higher.  The Dow closed at a new record high.  I have noticed they like to do that on a Friday.  Maybe to give retail investors something to get excited about over the weekend?   Volume increased (but rather light for an expiration day) and breadth was +65%.  New highs were slightly better at 174, but still weak for a thrust bar to all time highs.  The daily chart looks like we are above resistance, but here is a look at the weekly chart.

The weekly chart I show on the market status page has some trend line resistance up in this area.  I drew those lines close to two years ago I think.  It has been so long I can't remember.  I don't know if they will come into play or not.  Just something to keep in mind as the price action unfolds.  Lets see what the futures chart holds.

The futures closed below the 18 SMA on the 10 AM bar then bounced back to test the MA late morning.  They were struggling there and started to turn back down when the market spiked up on the Greece news.  It was up and away the rest of the day.  What happens now?  News like this is often retraced.  After all it is not really fundamentally good.  Besides everybody was already expecting some kind of deal.  That expectation is what sparked this entire rally in the first place.  A complete retrace of this news move would put the market in a vulnerable position.  What makes this situation more troublesome is that there seems to be only a verbal agreement.  Greece is supposed to come back on Monday with some items that will need to be agreed to by the rest of Europe.  I guess nothing could go wrong there, LOL.  There was speculation on a 6 month extension that turned into 4 months.  With the rhetoric that has been going on between Greece and Germany it seems like this could all fall apart pretty easily.  I don't really know.  What I do know is that in 2010 and 2012 they made an agreement to kick the can down the road a couple of years.  This is an agreement to come to an agreement in a few months.  Doesn't that kind of indicate the situation is much trickier this time?

I have  no idea what happens next week.  It looks like SPX may be approaching some resistance.  The news move may be retraced or not.  The news itself may be reversed if the deal falls apart.  SPX dropping back below 2100 would likely bring out some sellers.  Above that and the bulls stay in charge.

Many people are out saying the low in oil is in.  It almost sounds like many people are desperate for that low.  This is a weekly chart that includes commitment of traders data (COT).

This chart shows large traders are long somewhere around 300k contracts while commercial hedgers are short about the same amount.  That explains the desperation quite well.  It is coming from trapped long side traders.  Most people say the commercials are the smart money.  Notice back last summer they had the most net short position in 5 years of data.  Not bad timing there.  The large traders on the other hand got royally screwed by the biggest long position on the chart.   Kind of explains the panic doesn't it?  Meanwhile the supply keeps growing.  Here is a look at this weeks data courtesy of Bespoke.

Inventory is rocketing up lately.  That kind of makes me wonder about the economy.  That seems more then just the production, but time will tell on that.  Here is what Bespoke had to say.

Two things stand out in these charts.  First, as crude oil inventories continue to build, once again this week we have had to adjust our y-axis higher.  As a result, the second thing that stands out on the chart is how high current levels are to their historical average.  As of the latest report, inventories are currently 100 million barrels (30%) above their historical long term average and have never been higher than they are now.

The trouble is that people are still pumping like crazy.  Here is what the Devon CEO said this week.

With that in mind, we’re laser focused on execution which is allowing us to decrease E&P capital spending by roughly 20% in 2015 without any reduction in our previous total production growth guidance or our previous guidance of 20% to 25% oil production growth.

I actually had to read that twice.  They are cutting capex by 20% while increasing production 20-25% this year.  What they are losing on the price decline they want to make up in volume I guess.  That seems to be what everybody is trying to do.  I remember back a few years ago when natural gas started crashing as fracking really started to increase supply.  It got way extended on the downside and everybody was bearish on it.  I kept think it had to be bottoming.  No dice.  It kept on crashing for years.  The reason was that people just kept on pumping.  They pumped as much as they could to make up for the price decline.  Of course that kept the price declining.  I am very sure we are not at the bottom yet.  I am also sure the market cares what happens to oil.  The last leg down was taking SPX with it.  The current rally also seemed to be helped by the oil bounce.  If it tanks again it could take SPX down also.

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

Bob

Daily update 2/19 Japan trade balance

Range bound.  Here is a look at SPX.

SPX appears stuck between 2090 support and 2100 resistance.  It traded to a new high today, but failed to stay there and closed slightly in the red.  Breadth was slightly negative.  New highs improved a bit to 148.  Still very poor for new highs.  SPX traded above 2100 multiple times today, but simply found no buyers.  We have a nice narrow range developing to watch for a break out of.  Lets have a look at the futures chart.

Pretty easy to see the trading range that has developed.  It has gone on long enough to let the 18 SMA catch up.  We should either continue up as a bounce off that MA or break it to start a pullback pretty soon.  Maybe tomorrow.

Buyers above 2100 were missing in action so far this week.  Price has gotten up there and paused indicating it is truly a lack of buyers and not really selling resistance.  I have not seen much in the way of selling pressure at all.  Intraday pullbacks are short lived.  Until either the buyers or the sellers get more motivated we will be stuck in this range. 

Japan has been purposely devaluing the Yen in the hopes of improving exports and creating inflation.  How are they doing on the exports?

Apparently terrible.  Are they on the way to printing their way to prosperity?  Doubtful.

Bob

Daily update 2/18 Lacking conviction

Slow creep to nowhere.  Here is a look at SPX.

We did not quite get that second close at 2100.  The futures opened down a bit this morning, but there was no significant selling pressure.  We tested down to the Dec. high again today and bounced.  However, today's bounce had less vigor as we did not test yesterday's high.  Breadth was slightly positive, but only after the FED minutes came out at 2 PM.  New highs were down to 132.  Not exactly a sign of increasing strength.  There was no buying interest above 2100 today.  Here is peek at the futures chart.

We can see the futures have stalled in this area.  Not surprising given the overbought condition.  The question as always is whether this is a consolidation to go higher or a top.  So far we are holding above the Dec. highs, but have not really pushed through decisively.  Will it or won't it?  Lets take a look at IWM.

IWM is at new highs.  However, look at that volume on the break out and two days since.  Hmm, not so much conviction showing up there. 

I have yet to see or hear anybody calling for a top.  Even some of the usual skeptics don't seem to be skeptical at the moment.  If this turns out to be a top it will catch a lot of people by surprise.  I will be watching the Dec. high area of 2090-2093.  A close back below there would constitute a break out failure.  I see a lot of complacency, but I don't see a lot of conviction in the technical picture.  I guess we will see what happens.

Bob

Daily update 2/17

A little more up.  Today looked like that slow creep pattern may be starting up again.  Here is a look at SPX.

SPX closed right at 2100 thanks to a last minute buying spree.  Despite the up day the breadth was negative all day and ended at -55%.  New highs were down from Friday's 203 at 151.  New lows remained low at 13.  This break out to new highs is still in the very weak category.  Will the buyers show up to chase price or run out of steam completely?  We remain overbought short term.  Is that a limiting factor?  Lets see what the futures chart has to show us.

The futures looked like a jamb job in the last few minutes to get SPX back up to 2100 for the close.  It was there earlier in the day, but sold off in the afternoon.  The -DI line is down in the 11 range where the market often struggles to go up.  Price is obviously well extended from the 50 SMA. Buyers might be a little shy.

I have seen a number of articles talking about how bullish the new high in SPX is.  One came from a guy who was not interested in U.S. stocks last year at all.  All of a sudden he is getting rather gung ho.  A contrarian indication?  I mentioned the other day I searched and could not find any recent articles on a top for IWM.  There seems to be broad acceptance the market is going higher.  I have seen no mention that financials and transports are both lagging.  The Dow has not made a new high yet either.  Market internals are showing some strength, but are not rip roaring by any means.  New highs are lower then they were earlier in the year.  So far this move up looks pretty feeble.  If the bulls don't come in with some real strength and push price higher with some vigor this retest of the Dec. high will fail.  The financials and the transports need to catch fire as well.

There was quite a bit of talk about Greece today.  It seems that investors mostly believe there will be some deal at the last minute.  Why wouldn't they believe that.  They have been conditioned over the last few years to believe it will happen.  Maybe that will be the case, but there is definitely risk this time.  The Greek gov. has made it quite clear they want debt forgiveness.  Germany has made it clear they won't accept that.  Near as I can tell almost everybody expects Greece to cave in.  However, the new gov. was elected to change things.  They have been going along with what they were told to do since 2010 and the country is a disaster.  I believe the new gov. recognizes that nothing is going to change without debt forgiveness.   I think they are correct on that.  I suspect they will dig their heels in much harder then ever before.  Italy, Spain, and Portugal are waiting in the wings if Greece gets debt forgiveness.  That makes it rather hard for Germany and the ECB to do it.  This isn't necessarily just going to be resolved easily.  I guess we will see what happens.  Just beware there could be some volatility if things don't go smoothly.

Bob

Daily update 2/13 Everything is wonderful

Buyers were not scared off by Friday the 13th.  Lets have a look at SPX.

SPX closed 3 points above the Dec. high.  Breadth was a pretty good 60% positive.  Volume dropped from yesterday.  That was true on SPY as well.  New highs expanded to 203.  While decent that was still lower then back in Jan.  I noticed we are pushing into the 2012 trend line again.  I have no idea if that will be resistance or not.  SPX is getting pretty extended from the 18 SMA again.  If you look closely you will see that the MA is slightly lower then it was when were up here in Dec.  Will they show up to keep pushing price?  Here is the futures chart.

There was a bit of a dip in the afternoon.  The dip buyers pounced on that and drove prices higher into the close.  People were not excited about pushing price.  They only come in when there is a dip.  Once price makes a new high everybody stops until the next dip.  While we can always keep going up in that manner the problem comes if there is a reason to sell.  All those hesitant buyers that know they are taking a risk buying here could easily turn into sellers.  Price is extended from the 18 and 50 SMAs on this chart.  To push prices higher people will have to be willing to buy that short term overbought condition. 

Historically the next week is a soft week for the market.  We are short term overbought so that could come into play.  There were a number of indexes making new highs today.  Notably absent was the transports and financials.  They have been lagging on this rally and they lagged again today.  We have not pushed enough higher to allow for a retest from above to be successful.  The bulls need to keep this thing going or this retest will be a failure.  There was a lot of happy talk on TV today.  Toward the end of the day I was told the new high means everything is fine and just keep on buying.  In fact buying now was a big theme in the afternoon.  I did a little searching on Russell2000 tops.  I found a few articles back in Sept. proclaiming a major top on the index.  I could not find anything since the Oct. low and bounce back.  There is no shortage of optimism here.  The technical condition is still riddled with problems.  I guess we will see what happens on this retest. 

All the happy talk on TV today proclaiming this is a great time to buy had me remembering back in time a little bit.  Lets take a big picture look at the last 20 years.

One thing that has been very consistent throughout market history is investor perception.  People assume everything is great when the market is soaring to new highs.  People also think things are terrible when the market is tanking in a major bear market.  Markets overshoot in both directions.  Reality is not as good or as bad as the markets would have you believe sometimes.  I know for absolute certainty that the economy is not nearly as good as the 2007 top.  That top was not nearly as good as 2000.  Interest rates tend to track up and down with economic growth.  Never have rates been this low all around the world.  I know with absolute certainty that everything isn't wonderful.  The bond and commodities markets already know that.  What I don't know is how long before the stock market figures that out.

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

Bob

Daily update 2/12 Whats up with retail?

Nothing like Putin saying yeah sure lets have a cease fire so I can rearm my guys to get people buying stocks.  Today they ignored the Greek situation.  What happens tomorrow?  Here is the SPX chart.

After a big gap up this morning it was a slow slog to the upside.  There was a clear hesitancy to push price.  However, every little dip in the futures was reason enough to rush in to buy.  We saw that same kind of price action back in Dec. when coincidentally or not we were in the same area.  SPX closed at a new high for the year.  It was within 5 points of the high before stalling.  New highs expanded to 188 which is better then the last few days, but well below the 250-300 we were seeing earlier in the year.  New lows dropped down to 12 which is very positive if they stay down there.  We have the top of the Keltner channel here as possible resistance along with the high.  Lets have a look at the futures.

The futures got quite a boost on overnight news.  This is a test of the Dec. high.  Nothing to do now but wait and see what happens.  We are getting a little overbought in the short term now.   Are the bulls ambitious enough to really chase price higher?  

The breadth was a strong 74% positive so the rally was broad based.  Now we are where the rubber meets the road.  Lets see what the breadth chart looks like.

While both breadth indicators are positive they are not particularly strong.  No clear sign we are starting a thrust that is going to take the market significantly higher.  The more important thing to watch here is the DJ20.  Despite the lower fuel costs the transports are lagging behind.  Here is a look at the chart.

Despite lower fuel costs that should absolutely be a positive for this index it is still below the Jan. peak.  The XLF financial ETF is lagging a little bit also.  There is at least a moderate risk of this retest of the high in SPX being a failure.  The Greek situation is still not settled and may come back to the forefront at any time.  Pay attention.

The lower fuel costs are supposed to be great for retail.  What exactly is going on here.  Take a look at these charts.  This is wholesale inventory to sales ratio.

Source

This one is business inventory to sales.

Source

And now the reason why the ratios are rising so fast.

Source

Sales have been poor for two months in a row no matter how you look at them.  It was the biggest two month drop since 2009.  The obvious problem is that sales need to pick up or businesses are going to cut back on purchases.  That will cut production and hurt GDP.  If the cutbacks are big enough then layoffs will occur.  A big inventory build is usually how recessions start.  I have mentioned this before, but I don't want anybody to forget it.  The negative effects of the drop in oil price happen up front while the savings to consumers happens over the long term.  We are now seeing the up front negative impacts.  The severity of those impacts remains to be seen.

Bob

Daily update 2/11 Bullish R2000?

Breadth was negative all day long as the market tried to rally.  At one point it was 68% negative and SPX was only down about 2 points.  However,  AAPL was having a very good day.  Its market cap reached $700 billion today.  With SPX being a cap weighted index that means AAPL has a bigger weighting then any stock has ever had.  I don't know offhand what that weighting is, but I wonder if the breadth mismatches we have seen occasionally this year had to do with AAPL.  I will pay more attention to that in the future.  Lets see what the SPX chart looks like.

SPX opened down a bit and bounced.  It sold off hard in the early afternoon for a short while.  It then bounced back and even popped out to a new high of the year for a few minutes.  All the while breadth was negative like a distribution day.  We closed with breadth at -55%.  There were 114 new highs and 26 new lows.  The highs were better then they have been the last two days.  However, still very weak with the indexes so close to the highs.  Are we making a right shoulder here or are we going on up?  Here is a look at the futures chart.

There was a pop in the futures after the close on Greek debt news.  However, as I write this they are going slightly negative from the 4 PM close. There still seems to be resistance in this area during market hours.  There are a lot of white price bars.  We keep going in and out of green.  A strong market usually has runs of green bars back to back.  This action is pretty sloppy.  I still don't see any sign we are in blast off mode.

I have no idea what is going to happen in Europe or how the market will be affected.  It is difficult enough to try to predict what is going to happen in normal conditions.  I don't see how it is possible at all at the moment.  A close by SPX back below the 50 DMA is likely to bring on the sellers.  As long as the bulls can keep it above that they have a chance to get it going up.  They seem to be in a struggle at the moment though.


I saw two articles about the R2000/IWM index getting ready to break out.
Why The Russell2000 Is About To Rally 10%
Stock breakout, Bond breakdown about to happen?

I have seen a number of these types of articles over the last few months.  All pointing to the sideways trading range that is itching to break out.  One thing that usually happens during long trading ranges that are a precursor to another big upside move is that sentiment tends to get bearish.  That usually leads to people doing some selling and/or shorting during the basing action.  Sometimes sentiment can get downright bearish.  However, that is not the case here.  I have yet to read a single article proclaiming IWM is forming a top.  I am sure they are out there, but there have not been any in my usual hang outs.  Zip.  Nada.  Its that bearish sentiment that drives the market significantly higher on the break out.  I don't think that fuel is there at the moment.  On the other hand, if this turns out to be a top there is likely to be lots of downside fuel.  Which will it be?

Bob

Daily update 2/10 Warning from U.S. treasury on leveraged loans

The bulls showed up again just when they needed to.  Here is a look at SPX.

SPX made a new high close for the year.  However, it was below the 2/6 intraday high.  Not exactly clearly above resistance yet.  Oddly the breadth was only 54% positive despite SPX closing over 1% higher.  With all the major indexes up quite a bit that is really, really odd.  Did people go out and buy only the biggest cap stocks in each of the indexes?  We have had several odd mismatches this year with breadth and the size of the move.  New highs increased a bit to 88.  Once again under 90 even on a big up day.  Not much of a sign of strength.  New lows increased from 21 to 34.  Once again the lows are higher then they should be sitting here just below the high.  It is possible today was just a retrace of the Greek news that sparked the sell off the afternoon of 2/6.  It was not a strong enough day to indicate we are blasting off.  Maybe we will get strong follow through tomorrow to clear things up.  Lets see what the futures have to say.

The futures are trying to break out of the upper Keltner channel once again.  Will they be successful this time?  Will resistance win out again?  The 18 SMA has caught up to price now eliminating the short term overbought condition.  Breaking that MA could put the bears back in control. 

The bulls have come out to buy the dip all year.  However, they have not gone beyond the call of duty and pushed prices to new high ground.  With a possible lower high triple top forming another turn down could bring out a lot more selling pressure.  Will the bulls come out to play again tomorrow?  They will probably need more desire then they showed today to power through resistance.


I have written about the large amount of high risk loans in the system.  Many of those loans went to energy companies.  Here is a good article on the subject.  Treasury Warns Congress (and Investors): This Financial Creature Could Sink the System  Here are a couple of interesting charts.

The so called reach for yield has caused much money to be loaned out with very low lending standards.   That has been the cause of past financial crises.  Will we get lucky and this time is different?

Bob

Daily update 2/9 More on the global debt

This makes 3 out of the last four days were down.  However, we did not break key support yet.  Here is the SPX chart.

SPX closed below yesterday's low, but above the 50 SMA.  It dropped briefly below that MA in the afternoon, but manged to bounce.  Volume dropped considerably today.  It is really noticeable on the SPY daily chart.  Breadth was 57% negative so not real broad based.  Maybe the most telling stat today was a drop in new highs down to 59.  That is the first time we have been under 90 all year.  It was the lowest total since the mid Dec. low.  Even in the strong market of the last two years a drop below 90 has often signaled a pullback was close in time.  New lows had a modest rise to 21.  The light volume after the opening gap down indicates there was a lack of desire to sell into weakness.  That is a phenomenon we have seen pretty much all year.  The lack of rally today indicates the desire on the part of the dip buyers was not very strong.  It did not take much selling pressure to keep the bulls at bay.  If the buying desire does not resurface tomorrow this market could be in trouble.  Lets take a look at the futures chart.

The futures held the 100 SMA today.  However, the 6 SMA has turned down now for the first time since this bounce began.  While support held today downside pressure is starting to build a bit.  Today's low looks rather important for the bulls.  A break down is likely to usher in considerably more selling pressure.  Lets take a look at the breadth chart.

The last positive cross on the 10 DMA breadth lines was on 1/21 and SPX closed at 2032 that day.  Thirteen trading days later we are at 2046.  With all these new highs and positive breadth we have not made any significant progress.  We even made a new low for the year during this time.  This is the exact opposite of what we have seen for years.  We had times where all internals were negative yet the market did not drop.  The bulls would make fun of the bears for being wrong over and over again.  The shoe may be on the other foot now.  While many bulls are expecting a positive resolution to the current trading range it may not happen.  It is important to understand this.  We have not had this type of internal mismatch at any time in this bull market.  We have not not gone up on positive internals. The 10 DMA breadth lines are now heading for a negative cross if the bulls don's pull out yet another stick save.  I think from this price formation such a cross would be very negative.

It is important for the bulls to show up tomorrow.  Did I make that clear up above?  We held key support levels today, but the bulls did not show any ambition.  If the sellers get more anxious about selling into weakness that support is likely to fail.  If the drop in new highs continues it would be a clear sign the bulls are losing their will to buy.  SPX is still above the 50 DMA so they have a chance to save it.  A close below that level (2043) should bring on considerably more selling pressure.  The bulls really need to get to new highs to clear the air.

This is a pretty interesting article on the global debt problem.  China is a huge contributor, but it really is a global situation.  China’s Monumental Debt Trap - Why It Will Rock The Global Economy  I found this interesting table in there.

The amount the debt has increased since 2000 is simply staggering.  Do you think the global economy is better now then it was then?  While some economists like Paul Krugman would say that debt is not a problem I submit to you that the debt is exactly what is wrong with the global economy.  It will only get worse as long as we keep adding to it.  Here is some data broken down for several countries.

The reason Japan is 25 years and counting on their depression is because they will not default and let the debt clear.  Most people would admit you can't spend more then you make forever.  However,  those same people don't seem to understand that applies to governments and entire populations.  It does and there is plenty of research to prove it.  No amount of new debt can solve the problem of too much debt.  I wonder if economists will ever look at their own research and understand that to be true.  I won't be holding my breath.

Bob