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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?


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