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Trend table status

Trend

SP-500

R2000

COMPX

Primary

? 3/31/20

?- 3/31/20

Up 5/29/20

Intermediate

?- 5/29/20

?- 5/29/20

?+ 5/29/20

Sub-Intermediate

Up 4/20/20

Up 4/22/20

Up 4/17/20

Short term

Up 5/20/20

Up 5/20/20

Up 5/20/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Thursday, April 30, 2015

Daily update 4/30 GDP price deflator

There was some follow through for the bears.  The bulls tried really hard today to push the market up, but the bounce got sold into hard.


SPX closed below the 50 SMA.  The breadth was -74%,  New lows outpaced new highs 53 to 43.  It looks like the bears are in control for now.  The market has continued to bounce off the 100 DMA this year, but there are a lot of hits already.  The last new high was only marginal as well.  We also have May coming up.  It seems like this might be a time when it won't do the bounce.   We have a modest short term over sold condition.  However, the TRIN was only .86 so today is unlikely to be any kind of significant low.


The -DI line made it to 35 today so that opens the door for a bigger sell off.  Notice the ADX line is turning up again.  That has been the case all year.  The only time ADX has risen has been during down moves.  We have also seen a lot of -DI 35 readings.  Way more then during any other period in this bull market.  I am firmly convinced we are experiencing a full distributive top that usually precedes a full blown bear market.  This chart is clearly negative so the bulls have some work to do to get bullish again.  However, we are oversold enough to bounce a bit here as the bulls attempt to hold the 100 SMA.  A bounce back up to test the 18 SMA from underneath is a possibility.  Unless we get some massive buying spree I would expect sellers to reemerge at higher prices.

Today turned the short term trend down across the board.  R2000 did enough damage to enter a sub-intermediate downtrend.  I think this is the first time that has happened since I started the trend table.  The short term trend has been bopping up and down all year.  It is a little difficult to say with any high degree of certainty that this time we are starting a move that will last longer on the down side.  However, I have a feeling it is different this time.  I guess we will see.

Many people say the price deflator is the FED's preferred inflation indicator.  Check out this chart.


This is only the 4th time this indicator has gone negative.  Two of those prior instances came in a recession.  The one instance we did not see a recession the deflator turned back positive the next quarter.  If we see a negative reading for Q2 I would have to think the odds of being in or about to be in a recession would have to be pretty high.  It seems unlikely that was also the fault of cold weather.  It seems like there is absolutely no reason to raise rates now.  This data did not seem to bother the FED at all yesterday.  Are they just hell bent on raising rates this year no mater what?

Bob

Wednesday, April 29, 2015

Daily updatre 4/29 The economy is different this time


The FED announcement created a little volatility, but not much.  The dip buyers did their thing several times today, but they could not get a positive close.


Volume increased considerably today so there was participation.  In the end the bears won out.  The breadth was -65%.  The new highs dropped down to 55.  New lows picked up to 26.  Crossing the 25 threshold is a caution flag.  The 18 SMA held once again.  Will it hold a third time if tested?


The futures are now below the blue potential support line.  That indicates the last break out to a slight new high was a failure.  Price is currently below the 18 SMA, but we still don't have confirmation of a break.  The MACD is getting close to giving a sell signal that would confirm the negative DI cross.  You can see plenty of lower tails indicating the bulls are trying to hold the market up.  Will they be successful?


The 10 DMA breadth lines got a  negative crossover for the first time since back in March.  The McClellan oscillator is also negative.  It has oscillated back and forth several times over the last few weeks.  The breadth data would seem to confirm the key reversal day as having at least some importance.  Will the bears pounce on the weakened market condition?

While the dip buyers are active the market is getting weaker.  If tomorrow is down we should be in pullback mode.  I think SPX needs to close above 2120 to try to clear the air.  On the downside the first key support is the 100 SMA at 2068.  The 50 DMA has been almost totally irrelevant the last couple of years.  I don't think I would plan on it being support here.  I have my doubts the 100 will hold for long if we head south.  The overall technical condition is extremely weak.

The first quarter last year ended up with a GDP of -2.1%.  There was definitely some soft data, but this year is different.  The last few months I have spent quite a bit of time studying past economic data.  I noticed that recessions can manifest themselves in considerable different ways.  That is what makes it hard to identify them.  I have found some pieces of data that don't suffer from as large of revisions as the GDP and employment data do.  Those are actually very poor data series to use to understand what is going on in the economy.  I find it odd that so many economists write about them like they are important.  Nothing could be further from the truth.  However, I have come up with some data that is usually only slightly revised and yet taken together do paint a decent picture of what is going on.  Looking over the last 50 years of data it would appear that the best early warning sign of trouble is the ECRI WLIg (weekly leading indicator growth rate).  There is no need to watch anything until it drops to -4.  That is not a sign of going into a recession, just a sign it is time to pay attention to the data.  That happened back in Dec.   The stock market is a part of the this indicator which means a 10% pullback in stocks can send the WLIg pretty negative.  That makes it a bit tough in those circumstances.  However, when it drops negative like it did this time with stocks at their highs it is often a much more ominous signal.  Industrial production, retail sales, and factory orders have all been falling for months.  Business and wholesale inventories have risen significantly the last few months as I have shown on the blog.   Despite the economic scares in 2011 and 2012 we have not had this combination of things all going on at the same time.  We are now into 6-7 months of softening data in most of these data series.  If things don't start turning around pretty soon a recession is going to be hard to avoid.  With building inventory and soft sales there could be downward pressure on the manufacturing data this quarter.  We do not appear to be in a recession yet, but we seem to be weak enough that we could be in the next few months.  Will retail sales continue to be soft?  I think the consumer is the best chance to cause a pick up in the economy.  Recently consumer confidence appears to be weakening some also. 

I warned last year that the negative effects of the drop in oil would happen up front while any positive effect on consumers would take a while.  So far that appears to be what is happening.  The savings on energy is going into paying off debt and rebuilding savings instead of splurging.  Last year when the weather warmed up consumers went on a spending binge.  That does not appear to be happening at least so far this year.  It looks to me like we are at the highest risk of a recession since this recovery began.  I will be paying close attention for now to the data.

R2000 made the lowest close in the last month turning its short term trend down.

Bob

Tuesday, April 28, 2015

Daily update 4/28 Watching IBB

The bulls showed up for the post reversal day bounce.  Tomorrow will probably tell us more.


SPX found a bottom during the early morning selling at the 18 SMA.  The dip buyers did their job the rest of the day.  Breadth was a respectable +60%, but new highs dropped way down to 60.  That is really pitiful for one day off an all time high.  With this being a positive day that makes it all the worse.  I could see that if we were down 1.5% or something.


The futures bounced off the 50 SMA this morning.  The DI lines recrossed back to positive.  This is starting to get that braided look which is an unstable pattern.  ADX backs that up with an 8.85 reading.  I don't know if I have ever seen it that low on the futures.  It is a rather amazing lack of trend.  That usually means something big is about to happen.


I think the key to what happens next lies with the biotechs.  They are clearly a bubble very similar to tech stocks back in 2000.  They have a fairly big influence in QQQ and IWM.  If this turns into a top it could easily take the entire market down with it.  A month of over sold bounce was essentially wiped out in  two days.  We have important support at the green line.  Lets see if we test that support in the days ahead.


I just wanted to refresh your memory of the biotech bubble.  It will be pretty shocking if that is not a major top in this ETF.  They will likely fall hard.

Tomorrow is FED day which is a bit of a wildcard even though nobody expects anything to change.  After that is over we can get down to the business of figuring out if yesterday's key reversal day was meaningful or not.

Bob

Monday, April 27, 2015

Daily update 4/27 GMO Projected 7 year returns

That was something.  SPX, R2000, and COMPX all had key reversal days today.  QQQ only missed by a little bit on AAPL strength.


A friend of mine did some research on key reversal days and decided they were most effective when retesting a high or low with more then one month in between.  That is the condition we have now.  We also have had an extremely feeble rally up to that retest.  The odds of this being some kind of consequential top have to be elevated.  Breadth was -62%.  This was a very strong reversal as the breadth was +70% at 10 AM.   I know the "taper tantrum" caused by Bernanke in May 2013 was that strong.  The key reversal day that started the bear market in Oct. 2007 was also along those lines.  Needless to say they are very rare.  We also have the sell in May thing coming up to deal with.  Despite making a new high today the number of new highs dropped to 98.  I already mentioned I was having trouble finding positives.  Today sure wasn't.


The futures managed to hold the blue line today.  That line was prior resistance and for today it was support.  We will have to see if it holds up.  One down bar was enough to cause a negative crossover on the DI lines once again.  We are still above the 18 SMA so the bulls could always take charge again tomorrow.   In fact a bounce seems to be the usual response to a key reversal day down.  However, a close below today's low any time this week would likely be a very negative event.

Unlike the Bernanke reversal there appears to be no particular news event for today's action.  Both Asia and Europe were up strong this morning.  The selling started right away in the biotechs and transports.  It then spread to the other indexes later in the morning.  As feeble as this rally has been it would be pretty shocking if we don't end up seeing more downside to come.  The bears fired a shot today.  Lets see if the bulls fire back or retreat.

This chart of GMO projected returns is pretty interesting. 


Source

I guess the best investment looks like timber.  Wall Street always keeps touting the TINA (there is no alternative) trade.  What will investors do if we have a real equity bear market?  TINA also means there is no place to hide.  If we were to suffer another 50% drop in stocks it could be more devastating this time.  Bonds cushioned the blow considerably in the last two bears.  That seems much less likely now.

Bob

Friday, April 24, 2015

Daily update 4/24 More poor factory orders

SPX makes a new closing  high by .3 points.  Yes, it was .3 points not 3.  That should bring out the break out players.


It was a very mixed day with a number of key indexes negative including IBB.  Breadth was dead even.  New highs dropped from 129 yesterday down to 106.  That with a new closing high on SPX is rather pitiful.  I still don't see any sign of momentum building that is going to carry this market much higher.


We finally got a positive DI cross, but it is so small you have to strain to see it.  This may end up being a bounce cross if we turn back down next week.  Not much more to say.  We await a decision by the market whether this is going to be a failed test of the high or not.

Today did not help the picture at all as internals were very weak.  They always say the most bullish thing a market can do is go up.  Of course that is true, but before every bear market there is always one last high.  The lagging indexes need to pick up some steam or this market will turn south.

The economic data continues to be soft.  Factory orders came in today and once again they were not good. 



For the third time in this recovery core capital goods is negative YOY.  We had soft data in 2012 that made me wonder if we were headed for a recession.  However, we managed to avoid it.  Some people think it was QE.  The FED's own research indicates QE barely affects the economy.  I think it was Hurricane Sandy.  There was a massive rebuild effort needed because it hit such a highly populated area.  If the soft data continues the outcome might be different this time.

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

Bob

Thursday, April 23, 2015

Daily update 4/23 Gaps

The COMPX made a new all time closing high today (it only took 15 years).  SPX made a slight new intraday high, but failed to close at a new high.


There were sell orders resting for SPX at new highs as it was only there for a couple of minutes.  The breadth was a decent +65%, but new highs were low at 127.  The close was also below the 3/20 highs.  Not exactly a pretty looking break out.  This chart looks really feeble to me.  Maybe it is just my bearish bias.


There is something pretty odd in this chart did you see it.  Look at the indicators.  The futures made a new high today, but the DI lines still have a negative cross.  I don't think I have ever seen that before.  I am sure it is a very rare phenomenon.  Rare does not necessarily mean important though.  Time will tell.  Needless to say the ADX is on the floor indicating there is absolutely no trend strength on this move.  In fact since March the only time the ADX has risen has been during down moves.  That is the exact opposite of what bulls want to see. 

Other then the fact that some indexes made a new closing high I am having trouble finding positive things.  The number of new highs is low.  The Dow, transports and financials did not make new highs and are a ways away.  The SOX ended up -1.5%.  In Signs of a bull market top  I talked about investors ignoring fundamentals.  Economic data is very soft both here and abroad and earnings estimates have been greatly reduced.  And yet the market marches to new highs.  There is a big disconnect between fundamentals and price. 

I think sometimes the market has an agenda.  They have been talking about the COMPX making a new high for over a year now.  Is this going to be a case of mission accomplished?  Do people really feel good enough to push prices into new high ground and beyond?  I kind of doubt that.  This market feels like it is completely exhausted to me.  I will still be watching the 18 SMA on the futures chart for a sign this rally is over.  In the mean time lets see if rally chasers show up or not.

I was talking with a friend the other day and I realized we viewed gaps a bit differently.  Here is my terminology on gaps.  I make a distinction between closing a gap and filling it.  To have a gap in the first place the open must be above the high or below the low of the prior day.  A gap is closed anytime price overlaps the price range of the day before the gap.  To fill a gap price must get to the closing price of the day preceding the gap.  The exception to that is the S&P futures.  Over many years of observation I noticed a pattern of price stopping at the high or low of the last 30 minute price bar of the day preceding the gap.  On the futures I consider the gap filled if it gets to the high or low of that last 30 minute bar.  So when I talk about a gap being closed or filled you will know what I mean.  Here is why I look at gaps this way.  The high/low of the gap day is often support/resistance.  If price gets into the gap there is often support/resistance at the high/low of the day preceding the gap.  If price gets past that support/resistance there is often more support/resistance at the closing price of the day preceding the gap.  Sometimes those support/resistance areas only cause a pause in price and sometimes they are like brick walls.

Bob

Wednesday, April 22, 2015

Daily update 4/22 Retail data

The dip buyers to the rescue again.


The sellers showed up on the opening gap up once again.  Just like yesterday the selling was cut short as dip buyers stepped in and drove the index higher on the day.  SPX got fractionally above yesterday's high before pulling back into the close.  Breadth was +55%.  That is a tad light for a +.5% day, but not as out of balance as we have seen some days this year.  There were 97 new highs which is still very low considering we are only 10 points from the high.  SPX sure is pressing on that downtrend line from the March high.  If it gets rejected again selling might pick up.  An upside break should have enough momentum to go through the March high. 


The futures tested below the 18 SMA overnight and again after the open.  The dip buyers would have none of that though.  We still don't have upside confirmation and now we have an additional 3 bars without it.  The DI lines still have that negative cross hanging out there.  Sooner or later we will break from this range.  That should be about the time I fall asleep at my computer.

We are still in limbo here.  I want to see a confirmed break of the 18 SMA on the downside before turning bearish.  Until that happens it is wait and see if the bulls decide to chase price higher.

The lower energy costs have not translated to increased retail sales so far.  Here are a couple of charts looking at the retail sales data.


Unfortunately this data series is not very long.  This was clearly a very bad quarter.  Its interesting that Q1 last year was not all that bad.  There are only two worse quarters in the history and both of those were associated with a recession.  My guess would be the people getting laid off from those well paying energy jobs have cut way back on spending.  From what I can determine many people are using the money saved on energy to pay off debt.  That is leaving a hole in retail sales.  We saw that with the building of wholesale inventories I showed a while back.  This could lead to production cuts if that is not already happening.  It will be important to monitor the retail data going forward.


This is a slightly different series adjusted for inflation.  While not quite as bad as the above chart it is still the worst quarter in this recovery.  In the last two recessions we can see several quarters of soft or negative data before the recession began.  We don't have that pattern yet, but we don't have enough history to be able to say whether that is important or not.

The retail data clearly shows we had the worst quarter in this recovery.  That validates what we are seeing in the inventory data.  If this condition persists long enough it will cause a recession.  The weather can't be blamed if the softness continues in Q2.

Bob

Tuesday, April 21, 2015

Daily update 4/21 China rail traffic

SPX gapped up into resistance and found a few sellers.  Biotechs were very strong on takeover news or the market might have been weaker.


Volume increased over yesterday on a reversal looking bar.  Breadth was slightly negative.  If that daily chart was upside down it would look like a pretty good long setup.  So far 2110 is holding as resistance.  This market is certainly winding up for a big move.


The futures are still above the 18 SMA.  Last night I said they needed to close a bar above yesterday's high to get the bulls back in control.  That would have confirmed an upside break over the 18 SMA.  The futures tested above that high in the night, but sold off after the open and the bar closed slightly below the high.  We now have four complete bars above the 18, but still no confirmation.  That usually means it is going to end up reversing back down.  Today's action raised the bar for confirmation.  Now we need a bar to close above today's high.  We still have a negative cross on the DI lines.  This chart is pretty interesting.   The last low took quite a while to form.  Now we have a multi day pattern forming at the highs.  Talk about indecision.

The daily chart looks like the bears could reach out grab the power pretty easy.  The sellers did not waste any time this morning selling into the gap up.  However, the bulls would not let them break it down.  I suspect that was because of the strength in the biotechs.  That may or may not be the case tomorrow.  It seems like we should be very close to a decision here.  Break out or break down.

More poor looking data from China.  Check out this chart.

Source

They are experiencing a worse drop then they saw during the great recession.  As reported earlier both imports and exports dropped double digit percentages last month.  This chart certainly backs up that weak data.  No sign of a turn around yet.  With the Euro dropping the way it did late last year Chinese exports could continue to come under pressure.  We can see why the PBOC is in panic mode.

Bob

Monday, April 20, 2015

Daily update 4/20 Chinese real estate

The PBOC lowered reserve requirements after the Chinese stock market closed which sparked much stock buying in Europe and the U.S.  Those dip buyers from yesterday were handsomely rewarded this time.


We closed the big gap down from Friday.  However, that stopped today's rally dead in its tracks.  The breadth was strong once again at +67%.  There were only 58 new highs though.  Volume was not very good either.  I think today was probably a one day wonder.  It served to make a lot of people relax after Friday though.  That is not necessarily a good thing.  I suspect this will roll over.


The futures tested above the 18 SMA today, but failed to stay there.  We did not do enough today to overcome Friday's negative action.  This chart looks like it could tip over again quite easily.  For the bulls to begin to get control back they need to get a bar to close above today's high.  That may be tough resistance.

The pattern of up Monday's this year held today.  Remember that Tuesdays and Wednesdays have been weak though.  Upside follow through tomorrow could be tough to come by.  Now that we filled the big gap down sellers may reappear.  The bulls need to show up again in force tomorrow morning. 

The PBOC lowered reserve requirements yet again to hopefully spur the Chinese economy.  Check out this chart of real estate prices.

Source

While there have a been a couple of times in recent years where home prices were soft this is much different.  The housing bubble bust in the U.S. cratered the global economy.  A real estate crash in China might be even worse for its economy then what we saw in the U.S.  Check out this chart.

Source

I have been reading for years that Chinese investment in real estate was much larger then in the U.S., but I had no idea it was this out of whack.  I certainly understand why the PBOC is panicking these days.  The surge in their stock market suggests people are now moving out of real estate as an investment.  Isn't it going to be hard to stop price declines in that mode?  The depression that has been going on in Japan since 1989 started with a huge real estate bubble pop.  Many people seem to think China can let the air out easy.  World history is littered with popped bubbles so this isn't new.  Popping one without cratering the economy would be new.  To my knowledge nobody has ever done it.  This is likely to be an evolving story for quite some time.

Bob

Friday, April 17, 2015

Daily update 4/17 Very good article on debt and the economy

Splat.


I guess people all of a sudden found things to worry about.  There are plenty out there.  Breadth was -78% so the selling was quite broad based.  New highs dropped down to 26.  I think that is a pretty good sign we are in pullback mode now.  SPX closed below the 18 and 50 SMAs.  Next key support is the 100 DMA.  With all the hits we have had on that MA this year it is probably time it breaks.  Selling appeared to be exhausted around 2 PM.  The dip buyers came in so we closed well off the lows.  That is probably because Mondays have been strong and many people know that now.  I don't find that type of action on a day like today very helpful for Monday.  Sometimes those buyers get rewarded with a gap up and somethings they get their heads handed to them.  TRIN was only 1.16 at the close.  With that low of a reading and all the technical damage we saw we are very likely to work lower in the days ahead even if it bounces on Monday.  We might make an attempt to fill that gap down from today, but there is no way to know at this point.  They might come out and slam a gap up on Monday.  This market has been suffering from lazy buyers.  We now have seen some real selling pressure.  I doubt this is going to be a one day wonder because of the weak technical picture.  This might be the opening of the flood gates, but we need to see follow through first.


The futures tested below the key 100 SMA, but closed above it.  This looks like the rally is over doesn't it?  It was weak to begin with so it will be surprising to me if we reverse back up and make new rally highs.  Since the March high we have made two slightly lower highs and one slightly higher low.  That is like a triangle, but the lows and highs were so close it looks more like a rectangle.  At any rate breaking that bottom line is likely to bring in a bunch of selling.

The news out of China seemed to be that the government told people to sell stocks just not exactly in those words.  The futures were down 5% after the close there.  Europe is starting to have a fit over Greece once again.  Those issues could be around for some time to come so that global markets are down on more days then we have seen this year.  That could get the U.S. off to a rocky start more often.  I don't have a clue what is going to happen on Monday.  We could bounce or keep tanking from what I can see.  Longer term the market looks set up for a bigger move down.

Today turned the short term trend to neutral in all indexes.  Had we closed down near the lows it would have turned them down.  That means the market does not have much room before they will be down.

This is a very good article on debt and the economy.  Hoisington Quarterly Review and Outlook – First Quarter 2015  Here are some interesting snippets.


Many assume that economies can only contract in response to cyclical pressures like rising interest rates and inflation, fiscal restraint, over-accumulation of inventories, or the stock of consumer and corporate capital goods. This idea is valid when debt levels are normal but becomes problematic when debt is excessively high.

Large parts of Europe contracted last year for the third time in the past four years as interest rates and inflation plummeted. The Japanese economy has turned down numerous times over the past twenty years while interest rates were low. Indeed, this has happened so often that nominal GDP in Japan is currently unchanged for the past twenty-three years. This is confirmation that after a prolonged period of taking on excessive debt additional debt becomes counterproductive.

Over the past four years, nonfarm productivity growth has slumped to its lowest levels since 1952, with the exception of the severe recession of 1981- 82. Such a pattern is abnormally weak. Interestingly, the Consumer Price Index was unchanged in the past twelve-month period (Chart 5). In an economy purely dominated by cyclical forces, as opposed to one that is highly leveraged, both productivity and inflation would not be depressed.

Monetary policy impacts the overall economy in two areas – price effects and quantity effects. Price effects, or changes in short-term interest rates, are no longer available because rates are near the zero bound. This is a result of repeated quantitative easing by central banks. It is an attempt to lift overly indebted economies by encouraging more borrowing via low interest rates, thus causing even greater indebtedness.

Quantity effects also don’t work when debt levels are excessive. In a non-debt constrained economy, central banks have the capacity, with lags, to exercise control over money and velocity. However, when the debt overhang is excessive, they lose control over both money and velocity. Central banks can expand the monetary base, but this has little or no impact on money growth. Further, central banks cannot control the velocity of money, which declines when there is too much unproductive debt. This happened in the1920s and again after 1997 and is continuing to decline today (Chart 6).

It seems to me that economists and politicians are the only people in the world that do not understand that too much debt is a bad thing.  This chart show it very clearly.

Since 1900 the velocity of money has only been this low during the great depression.  It is actually very near where it was in 1929.  The currency wars we see going on around the world are also very reminiscent of that time frame.  While the FED thinks they prevented another depression I am not so sure.  Maybe they just delayed it.

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

Bob

Thursday, April 16, 2015

Daily update 4/16 China market mania

Yet another mixed day.


The opening gap down did not really get many buyers or sellers.  After trading sideways for a couple of hours the bulls pushed price up to fractionally below yesterday's high.  However, once again there were no buyers up above 2110.  A little bit of selling late in the day took SPX negative.  The breadth was -54% which is pretty much in line with price.  The new highs dropped down under 90 once again to 71.  That is even lower then the 82 we had two days ago.  We seem to be losing steam here.


The bulls pushed price up to give us green bars twice the last two days, but no follow through.  We have a slight negative DI cross.  That is the second one on this bounce.  Over the last few years we have sometimes gone for several weeks without a negative cross so this is yet another sign of how lethargic this bounce is.  So far the bears have not pounced as selling pressure has been almost non existent.  This is really a case of the bulls being extremely lazy.  The 18 SMA is catching up to price.  We will either break it or it will push price through resistance soon.

So far the sellers have been holding back giving the bulls a chance to push the market higher.  However, the bulls seem to have very little ambition.  The sellers could lose their patience at any time.  After today's retest of yesterday's high I suspect breaking today's low will usher in some more significant selling pressure.  The market is obviously weaker tonight then it was yesterday.  A gap down in the morning might be more apt to find people willing to sell into it.  A gap up that does not get us above the highs of the last two days might find sellers so be careful.

The data coming out of China has not been good at all.  Last month both imports and exports fell by double digit percentages.  The real estate market has been falling for a year or more.  People are now putting money into stocks.  Check out these charts.

Source

It looks like people are piling into stocks as the economy is steadily getting worse.  Whats more is they are buying those stocks with margin.  What is that 4-5 times increase in margin debt over the last year.  These charts look like margin debt is going up multiples of what the index is doing.  Doesn't this seem like a recipe for trouble when the market finally corrects?

Bob 


Wednesday, April 15, 2015

Daily update 4/15 Interesting article on asset manager's problems

Yet another almost strong day.


SPX hit the downtrend line and got above Monday's high for a while.  However, late day selling took it back below that high.  Breadth ended the day +62%.  For most of the day it was around +68% so that late day selling took it down quite a bit.  There were 123 new highs.  Up from yesterday, but just back in the range it has been on this rally.  The volume increased quite a bit.  I am not sure that is a good thing since we failed to take out resistance.  We had strong breadth and strong volume and still only managed a .5% gain on the day.  If the big boys were piling in we should have easily been up over 1%.  Maybe the bulls will keep on pushing albeit in a lethargic way.


The futures got back to a green bar late in the day.  However, the ADX looks much like it did back in March.  There is no strong trend into this high.  In other words it might not take much for this market to reverse here. 

There is likely to be resistance here all the way up to the high of 2119.  This has been a very lethargic bounce from day one so we will see what happens.  It looks like an absence of selling more then heavy buying.  That means a selling catalyst can dramatically change things.  The transports remain relatively weak as they were barely positive today.  The small and mid cap indexes blasted out to new highs.  They won't stay there unless SPX gets up there also.  In the end everything winds up going where SPX goes.  Breaking today's low might usher in some selling.  Breaking yesterday's low is likely to open some floodgates.  Lets see if the bulls still feel like pushing higher.

This is a pretty good read.  Market Overview Q115  There are not many articles I read completely through that don't have charts, but this is one.  Some interesting snippets.

In such an environment, John Dizard's blunt and objective evaluation of the markets comes through like a breath of fresh spring air. He recently noted in the Financial Times, "The policy regime has now made it mathematically impossible for fiduciaries [e.g., investment advisors and pension managers] to meet the beneļ¬ciaries' future needs through the prudent buying of securities." 

On the other hand, by constraining his assessment to "prudent" buying, Dizard also highlights an investment conundrum: investment advisors must either resort to imprudent and speculative buying of securities to try to meet their clients’ needs or face the music that there will be a shortfall. 

According to Jones, "the business risk of asset managers acts as strong motivation for institutional herding and 'rational bubble-riding'." Zerohedge clarifies the implication, "Simply put, it can be entirely rational—from the perspective of business and compensation risk—for asset managers to knowingly ride bubbles because of benchmarking and the short-term performance appraisal periods often imposed on asset managers by asset owners." Jones concludes that, “procyclicality could intensify as institutional assets under management continue to grow.” 

So one consequence we seem to get from an ever-growing investment industry is more herding which causes bigger and bigger swings in the market. Indeed this may go a long way in explaining why stock prices are still going up despite high valuations and deteriorating internals. It’s not “unsophisticated” individual investors chasing performance; it’s “sophisticated” institutional investors riding bubbles for fear of losing their jobs if they miss out. Insofar as this is the case, it would represent a massive deviation from what most investors want and from what Howard Marks described in his 2006 memo, "Dare to be Great."  

Think about those last two paragraphs for a minute.  The huge swings up and down we have seen since 2000 may be the new norm.  There is some other greats tidbits in that article.

Bob

Tuesday, April 14, 2015

Daily update 4/14 Global oil storage

It was a rather mixed day today.  After some early selling dip buyers came out to scoop up the bargains.  While SPX closed in the green many indexes did not.


SPX found support just above the 18 SMA.  Breadth was +59% which is a bit strong for such a mixed market.  Thus continues the fairly often breadth/price mismatches we have seen this year.  New highs dropped down to 82.  Just a reminder that during this 100 DMA buy pattern most of the time new highs dropped below 90 the bounce was over or very near being over.  This bounce continues to look very lethargic. 


The futures had one red price bar this morning which brought out the dip buyers.  However, the futures could not climb above the high of that red bar.  This looks like a neutral pattern at the moment which could still go either way.  Do we retest the high or break down below today's low first? 

The way the new highs dropped today I am a little suspicious that a retest of the high might end up in failure.  The upper trend line on SPX has moved down enough to correspond with yesterday's high adding some potential resistance.  With the difficulty the market has had rallying this year the bulls need to prove it is different now.  It is not clear to me that is the case.

I commented earlier this year about how breadth has been positive, but the market just isn't going up.  Here is a look at the latest breadth data.


Both the 10 DMA breadth lines and the McClellan oscillator have been green most the year.  Normally with breadth like this the market would be making steady progress higher.  The fact that we aren't doing that indicates it is not institutions that are buying stocks.  This looks like the footprint of retail traders and investors.  While most commentary I read is expecting this trading range to get resolved on the upside this does not look right to me.  Normally a trading range that breaks higher shows selling pressure that somehow does not break the market down.  What I call the invisible hand holding the market up.  This looks like the opposite case.  There is buying pressure in the breadth, but the market is being held down by the invisible hand.  In my experience that invisible hand is pretty powerful and rarely changes direction.  My best guess is that this trading range gets resolved to the downside eventually.  I guess we will see.

This chart of global oil storage is pretty interesting.

Source

Oil stores have been filling up for the entire history of the graph back to 2008.  Clearly demand has not been keeping up with production.  I guess I have to wonder what was going on with price.  If oil in storage has been rising the entire time why did oil go from the 30s to over 100?  Not normally how supply and demand work.  Was some of the price increase simply global liquidity looking for a place to go?  It may take a while for demand to catch up with supply to put real price pressure on oil as opposed to liquidity price pressure.  Oversold bounces may continue to happen, but I still think oil will work lower over time until we see real production cuts.  At the moment everything I hear is everybody is still pumping as much as they can.  I think I heard the other day Saudi Arabia pumped more last month then they ever did before. It does not seem like we have the conditions necessary for a sustained rally in oil yet.

Bob

Monday, April 13, 2015

Daily update 4/13 High risk loans going crazy

Sellers showed up a little short of the trend line.


After a positive start the sellers showed up and dominated the afternoon.  Breadth was -63%.  Is that going to be a reversal bar or just a one day wonder?  The market has reversed so often this year it could very well do it again.  As usual follow through is key.  This rally has been weak from the start so it would not be surprising to be over.  If the bears decide to pounce this could be forming a double top lower high.  That can be a pretty negative pattern like it was in 2011.  This one is pretty condensed in time, but I don't know if that is meaningful or not.


The futures made a bearish engulfing bar.  This is the first time we closed below the 6 SMA on this rally.  Price could not escape the Keltner channel.  Being slightly overbought short term that could be it for the rally.  We will have to see if the bears show up tomorrow or not.


IWM made a gravestone doji bar in the same area as the March high.  Obviously this is a precarious pattern.  Will the bears pounce on the possible double top?


COMPX has a potential head and shoulders top.  This is well formed at the moment.  Will the bulls come in and mess it up?

Needless to say with potential topping patterns in key indexes it is important for the bulls to show up and mess up the bears plans.  I keep seeing and hearing that money managers are all sitting on their hands waiting for earnings results.  We have clearly been trendless for months which could end soon with the heart of earnings season coming up.  I expect it will be about what the companies say about the future, not what they report for the first quarter.  It is not real clear to me exactly what the economy is doing.  Some data seems to be much weaker then we have seen at any time in this recovery.  CEOs may have some important comments in that regard.  Several big banks report this week.  XLF has been lagging behind lately, but was actually positive today.  Going up into earnings like we have this time raises the bar some for results doesn't it?  Wouldn't it have been better to sell off on the lowered expectations?  It will be interesting to see if stocks beating expectations by only a little bit get bought or sold.

The so called reach for yield has created amazing demand for high risk loans.  I talked about that some last year as people involved in the credit markets were worried about it.  Check out this chart.

That looks like 2/3 of loans being issued are now covenant-lite.  This kind of thing is never a problem until a recession hits.  Once credit dries up things can go to hell pretty fast.

Bob

Friday, April 10, 2015

Daily update 4/10 Wholesale data continues to be poor

The bulls showed up to play today, but not exactly in force.


SPX climbed higher out of the chute.  The breadth was only +52%.  New highs dropped from yesterday down to 128.  This looked more like a slow creep up kind of day rather then break out players jumping in.  I don't know if there is enough oomph to get over the March high or not. We have been sideways for months so it is not like the market is overbought here on any longer time frame.


It took a lot of work to get this bounce going and it has been lethargic the entire way.  After years of seeing panic buying every time the market hinted at going up this is a change.  It was not until well into new high ground before the buyers thinned out.  For now we have a confirmed break above the 100 SMA.  The bulls should be in full control lets see what they do with it.

The short term trend in SPX and COMPX has turned up.  The Russell2000 is very close but not quite there.  Just keep in mind I keep having to change the trend often this year and sometimes not long after changing it to up or down.  Follow through has not been this market's strength this year.  Resistance is likely to be around the prior swing highs at 2114 and 2119.  There is also possible trend line resistance from those swing highs around 2109-10.  According to Bespoke Mondays and Thursdays have been the strongest days this year.  The other days have an average loss so far this year. 

We did not have any tax selling this year to speak of.  Does that mean nobody sold anything significant last year?  The moves up have been weak and look more like an absence of sellers rather then aggressive buying.  Curious situation. 

I don't know if you have seen it or not, but Chinese and Hong Kong markets have been going nutso.  From what I hear it sounds like a mania has suddenly gripped people.  Hong Kong was up 10% this weak at one point I heard.  That is hardly sustainable.  It seems with real estate going down in China people are moving into stocks.  I am curious to see how that works out.  A real estate crash always seems to do serious damage to the economy.  Europe has surged to historically overvalued proportions in several key markets.  It kind of looks like we might be seeing blow off tops all around the world.  Hmm.

The week economic data continues to pour in.


The wholesalers sales went negative YOY for the first time in this recovery.  This is a limited data series, but you can see that the only times this happened we were already in recession.  Obviously this is not enough occurrences to be statistically valid.  However, this is definitely a caution sign.  This is a year over year look and last winter was actually worse then this winter.  Therefore it is not really so easy to say it was just a weather issue.  This is certainly going to lead to reduced orders which is likely to impact the manufacturing data before too long.


I am not exactly sure what to make of the inventory to sales ratio.  It is also the highest it has been in this recovery.  It is also higher then it was most of the last decade.  Back in the 90s it was often higher.  I wonder if this is affected by computers with more companies employing just in time inventory systems.  This could also be a big warning sign, but I can't say for sure.  It is clear that something is going on with the consumer despite the lower fuel costs.

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

Bob

Important

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