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Monday, February 9, 2015

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.


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