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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.


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