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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.


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