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Friday, May 29, 2015

Daily update 5/29 Explantion of resiliant market

The bears showed up today, but strength in the SOX helped hold the market up.  Well that and yet another Greece rumor.

SPX closed back below the 18 SMA again.  We are doing a lot of waffling around here.  Volume was heavy, but that was due to some index rebalancing.  New lows topped new highs 58 to 56.  Breadth was -66%.  The weekly chart is rather interesting.

Odd combination of bars the last few weeks.  The last three especially.  That is a hanging man followed by a shooting star.  This week confirms that bearish combo.by closing below last weeks low.  While the bulls have tried to push the market higher it just won't go at the moment.

The sellers came out today after the green price bars from yesterday.  That suggests we are likely in a short term downtrend.  I am giving the trend table a downward bias tonight, but I want to see more downside follow through before changing the short term trend to down.  The market has been so choppy I don't want to jump the gun.  The -DI line got up to 34 again.  There sure are a lot of high readings.  That is something we have not seen in this bull market.  I guess time will tell if it is important.  Price held the 100 SMA today.  The bears need to see a confirmed break of that MA.  The bulls probably have one last chance to pull out another stick save.  What will June bring?  It is a weak month historically and we are setup for a pullback. 

Monday should bounce or confirm the break of the SPX 18 DMA.  Everything I see points to a break down.  However, Monday's have been up this year so who knows.  At any rate the bulls have some work to do to get full control back.

I heard a guy on TV this afternoon say he did not understand why the market was so resilient this year.  He started naming off all the things that are wrong.  It is pretty simple really.  Late last year Wall Street went on a campaign to make sure that everybody knew that year 5 is always bullish.  On top of that we have the 3rd year of the presidential term often good for a +20% year especially in a second term.  I commented on these things in the blog a few times.  You can't lose this year.  It is impossible right?  So every little dip gets bought because you can't lose.  The market is going to race up you can't wait for a bigger dip.  You can't risk being left behind.  I am pretty sure that is all there is to it.  What Wall Street did not tell you is that we have never had either of those positive things happen after SPX was up six years in a row.  SPX has never been up seven years in a row.  I guess something unusual is going to happen this year.  We have all the classic signs of a bull market top.  Be aware.

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


Thursday, May 28, 2015

Daily update 5/28

That was an odd day.  Early in the day every rally got sold and every dip bought.  There was a little push up into the close, but it was not enough to get SPX positive.  Today was probably month end window dressing for the funds.  I guess they had some buying and some selling to do.

SPX ended just below the 6 SMA.  New highs were about the same as yesterday at 64.  However, new lows increased to 58.  Breadth was -57% which was considerably better then it was most of the day.  The late day rally helped the breadth statistics quite a bit.  Not really much new information in this chart.

The futures were right at the 18 SMA at the 4 PM close.  They popped up just a bit after hours.  We got a green bar so we have something to work with now.  Quite often red bars in a short term up trend bring out the buyers.  Green bars in a down trend bring out the sellers.  We have not really established a trend lately.  If the sellers come out tomorrow it should be a good indication we are in a short term down trend.  If the bulls come out to play tomorrow we should test the highs again.  I see ADX is falling on this bounce yet again.  Up moves seem to have no trend behind them since early March.  If we are to break out on the upside and go higher I think ADX needs to play along and show some trend strength.

Most Fridays this year have been down.  The weekly pattern is a bit messed up with Monday off.  Hard to say if that pattern will play out tomorrow or not.  The market continues to try not to decide whether to go up or down.  Sooner or later something has to give.


Wednesday, May 27, 2015

Daily update 5/27

Amazing what a little news can do.  The futures gapped up as expected after the high TRIN yesterday.  However, it was a rather weak open.  If not for news after the open I am not entirely sure we would have ended up positive.  The first bit of news was about yet another deal with Greece.  That sparked quite a bit of buying.  After that buying dried up we got rumors of a buy out in the semiconductor sector which sent tech stocks flying up. 

SPX reclaimed the 18 SMA.  SPY completely closed yesterday's gap down.  New highs increased to 65 while new lows stayed elevated at 45.  Volume was only slightly lower then yesterday.  Breadth was a strong +69%.  SPX crossed above the key 2125 level late in the day, but was unable to hold it going into the close.  Was that a one day wonder on the downside yesterday or is this a one day wonder on the upside today?

The futures ended the day right around the 18 SMA.  Both technical indicators are still negative.  That means the bulls have more work to do before they can declare victory.  They need to get a confirmed break above the 18 SMA, but even then there could still be lots of resistance near the highs.

Yesterday the selling started after the 8:30 AM U.S. economic news came out.  Markets around the world were largely positive at that time.  I would classify that as being fundamental data.  The buying today was on Greece and merger news.   That is not really fundamental to the broad market.  Isn't there always some agreement with Greece when it comes down to it.  The news will be when they default.  I suspect the fundamental news is more important and sellers may show up again tomorrow now that price has bounced back.  News induced moves like we had today are often retraced anyway.   If we end up going down the buyers today may end up fueling the fire as they are very likely weak hands. 


Tuesday, May 26, 2015

Daily update 5/26 Break out failure

SPX made a valiant effort to stay above the April high of 2125, but found no buyers.  I guess some of the bulls ran out of patience today.

SPX closed below the 18 SMA.  The breadth was -71% so the selling was broad based.  The new highs dropped down to 39 while the new lows increased to 75.  Looks like we should be in pullback mode.  We need a close below today's low to confirm a new short term downtrend though.

The futures are trying to hold the 100 SMA.  The -DI came within .06 of hitting the key 35 level.  We have had several 35 readings this year, but the bears have not stepped through that open door to cause a bigger decline.  Will they do it this time?  The MACD is also on a sell signal.  The bulls have some extra work to do now to get bullish again.

Both breadth indicators are negative.  The McClellan actually crossed negative on Friday so this was confirmation of that bearish indication.

Today SPX followed the day of the week pattern this year by going down.  Wednesdays have also been down days with Thursdays usually being up.  However, the TRIN closed right at 2.  That often brings out some buyers the next day.  Whether that bounce could last all day is a tough question.  We have not really declined all that much.  It seems unlikely the bulls will step in with a lot of force at this point.  It would be more of a question whether sellers show up again tomorrow at higher prices or  not.  Unfortunately my crystal ball is on the blink tonight. 


Friday, May 22, 2015

Daily update 5/22 Transports confirm break down, interesting comments from China

The market continued with the day of the week pattern by being down.  I wonder what happens next week since we will miss the usual up Monday.  Will Tuesday be a virtual Monday?

SPX failed to hold above the key 2130 level.  Wednesday was an outside.  Yesterday was inside of Wed. and today was inside of yesterday.  Price has tightened up like a coiled spring.  Breadth was -60% which was quite high considering the amount we were down.  New highs dropped slightly to 82.  New lows sprung up to 48.  Those numbers are certainly consistent with a market getting extremely thin.  I have only a very basic knowledge of Elliot wave theory, but it looks like you could make a pretty good case for an ending diagonal pattern.  The new highs/lows data certainly fits the bill for that.

The futures are stuck between resistance above and the 18 SMA below.  One of those is going to break next week.  With no buying interest at these levels this week a break down seems to be the higher odds scenario.

The transports closed low enough today to technically confirm its break down of support the other day.  If the Dow ends up following suit we would have a Dow theory sell signal.

This looks like a textbook bull market top to me.  I don't really know what else to say.  I have seen several articles lately about how the market is breaking out and is going to race higher.  I just don't see how that is possible.  There is absolutely no gas in the tank.  I guess we will see if I have to eat my words or not.  We should know a lot more next week.  The last couple of days we lost what little momentum we had.  Without another thrust to the upside we will head lower soon.

This was an interesting article on China.  PBOC Vows to Walk Fine Policy Line as Debt Endangers Growth  Here is some comments from the PBOC.

“Economic growth is, to a large extent, still relying on government-led investment, and the room for further expansion is quite limited,” the central bank said. “In addition, the rising debt size is forcing China to use a lot of resources in repaying and rolling over debt, which leads to contraction effects for the macro economy.”
Their stock market has been flying up on bad data partly because they expect stimulus.  Isn't the PBOC saying that stimulus will be limited?  I think this explains why that might be.

China’s total debt has reached 282 percent of GDP, according to the McKinsey Global Institute.

It sounds like the PBOC is realizing the only way their economy grows is when you increase the debt.  A situation many countries are in they just don't want to admit it.  I can't imagine the FED ever saying that debt service costs can lead to contraction effects in the macro economy.  Economists in general seem not to admit that.  It is almost like they somehow lost their basic math skills while learning to be an economist.  Most non economists can grasp the concept that if you continually spend more then you make you will become insolvent.  Somehow in economic land that does not apply to governments or populations as a whole.  Math is math.  It is inevitable in every situation.

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


Thursday, May 21, 2015

Daily update 5/21 Carolyn Boroden's interesting video

SPX makes a new closing high.  We finally got a close above 2130.

You can't say the bulls aren't trying to take the market higher.  Unfortunately this looks like the slow creep pattern.  Breadth was +53%.  New highs actually dropped considerably from 123 to 86.  Anything less then 200 at new highs is shaky.  Under 100 is worse then pitiful.  So far this market looks more like it is suckering in the few last dollars out there rather then taking off for another run. 

The futures bounced off the 18 SMA in the night.  While they closed at a new high this is still a precarious looking chart. 

So far this week the market has followed the yearly pattern of up Monday and Thursday and down Tuesday and Wednesday.  If it continues to follow the pattern tomorrow should be down. 

A blog reader sent me a link to an interesting video from Carolyn Boroden.  $SPX updated   I happen to know that she had a very similar setup in Sept. 2000 before that bear market started raging.  I had just started trading full time that summer and I was participating in her chat room.  When she talks about time and price on monthly charts it might be good to pay attention.  Here is a chart from her video.

Interesting that we have 91 months between peaks.  We are also clearly struggling with resistance in this area.  As tired as this market is I think it is going to be tough to get through resistance.


Wednesday, May 20, 2015

Daily update 5/20 Transports break down

The bulls pushed SPX to a new high after the FED minutes came out at 2 PM.  However, once again there were no buyers up there.

When SPX traded below yesterday's low the bulls stepped in to stem the decline.  However, they could not get anything going on the upside before the FED minutes.  The breadth was slightly positive.  So far SPX has been unable to stay above 2130 for any length of time.  It is important to note that because of the trading range we are not overbought on longer term measures.  That leads me to believe that buyers are shy because of price/valuation.  I guess not enough investors think the fundamentals justify higher prices.

We can see some upper tails indicating resistance at higher levels.  The futures are down a few points as I right this giving us a red price bar.  They are now sitting on the potential support of the 18 SMA.  Will they be able to hold up tomorrow?  The bears need to see a break of that MA.

The airline stocks crashed today taking the transports below key support.   Nobody seems to know the reason why.  Look at that volume.  This is either a great wash out low or a serious break down.  If this is a fake out they should be able to overtake support within a few days.  Since they have not made a new high at all this year this could certainly be an important break down.  People have been starting to talk about this index not participating on the upside the way it should.  I am sure they will notice the break down.  This sets up the potential for a Dow theory sell signal should the Dow also break key support.  With the weakness we are seeing in the economic data this could easily be for real.  It is time to pay very close attention to what happens.

The bulls have really tried hard to keep the market going up, but they are not having much luck.  This looks like an extremely exhausted market to me.  The kind of exhaustion that often precedes a bear market.  In Is both Dec. and Jan. down important? I noted that when both Dec. and Jan. were down it was usually a sign of a bear market.  The only time it was not was the 1983-84 occurrence.  Even in that year stocks continued down with the low in July.  Now we have the transports breaking down to add some odds that a bear market may be right around the corner.  We also have clear signs the economy is the weakest it has been in this recovery.  The evidence is stacking up that there may be trouble ahead for stocks.  Stay tuned


Tuesday, May 19, 2015

Daily update 5/19

No upside follow through yet again.  SPX stuck its head above yesterday's  high, but failed to stay there.

Volume picked up a bit today.  At this position that might not be a good thing.  Despite a slight upside gap this morning breadth was negative right from the start.  It ended at -58%.  New highs increased a bit to 125.  New lows also increased to 41.  Once again way higher then normal when making a new high.  The way the market keeps changing direction this year odds are probably pretty good we are reversing to the downside again.  A late day rally kept SPX above the break out level, but just barely.  There was clearly a lot more interest in selling then buying at these levels today.  I think it will be a very tough slog to move higher.

Not much new to say on this chart.  The ADX is on the floor indicating we have no trend.  A downside reversal could happen pretty easily here.  Will the bulls show up tomorrow to save the day?

I am starting to see quite a bit of talk about the transports lagging way behind.  I think it is making some investors a bit uneasy.  I believe if we fail this break out selling pressure could pick up considerably.  The dollar index had quite a strong day.  It is looking like it may have reached the bottom of its correction.  Oil and many other commodities got hammered pretty hard.  Those prior trends might be kicking back in.  I have heard much talk that a rising dollar could be negative for stocks now that people have seen how revenue is being affected.  While the move in stocks was miniscule today things happened in other markets that may end up having a big impact on SPX.  If we see downside follow through in stocks tomorrow we are likely headed south again.


Monday, May 18, 2015

Daily update 5/18 ECRI's WLIg

The bulls showed up on Monday as they have been doing all year.  SPX closed above its prior intraday high.  This is a break out.  The Dow was the only other major index to do it. Ttat will make the headlines this weekend.

We gapped down a little and started rallying right away.  The breadth was very negative and ticks were weak all morning, but the futures kept pressing higher.  This was clearly a futures driven move up today.  Those are not the most reliable type moves.  The breadth managed to get positive after SPX cleared its prior high and ended at +53%.  There were 117 new highs.  Still nothing exciting there.  New lows increased from yesterday to 29.  Entirely too high for a normal new high.  Volume dropped noticeably.  That is because it was a futures driven move.  This may be the weakest break out to a new high by SPX I have ever seen.  Now we are where the rubber meets the road.  We will see if buyers show up for the break out or not.  Tues. has been a negative day most of the time this year.  The bulls can't really afford that here.  There is not much room for a pullback to test the break out.

The ADX continues to decline on this rally.  The futures are pretty far away from the 18 SMA now.  Unlike last the last couple of years when getting overbought meant nothing, this year has been different.  The market has not been able to get extended in either direction without reversing.  I think a reversal this time will bring out more sellers. 

Market internals are a bit of a mess.  Here is the common stock advance/decline line.

The advance/decline line made a new high today confirming the move in SPX and the Dow.  This is the only market internal I can find that looks good.  Is this going to be enough?

If we keep going up I would expect the slow creep pattern where we make a few points everyday.  I don't see any sign the market is going to rocket higher.  I would expect a failure here on this retest to lead to increased selling pressure.  Closing back below the prior high of 2126 on SPX would be the first warning sign.  On the upside I hear 2140 a lot.  This may be an extremely weak break out, but we could always continue some higher. 

Lets look at the chart of the latest public reading of the ECRI WLIg indicator.

The WLIg indicator has gotten positive for a couple of weeks now.  If it stays positive it is likely the economic data would start to improve somewhat.  Would that be a good thing or a bad thing for the markets?  Near as I can tell this indicator has been moving largely on the back of commodity moves up and down.  Those moves have been inverse to the dollar index.  Inflation expectations have risen a bit.  If we saw improving economic data would rate hike expectations move up? 

I can't really figure out if any of the currency, bond and commodity moves of late have anything to do with the global economy.  The water is very muddy.


Friday, May 15, 2015

Daily update 5/15 Industrial production (IP)

That was not the most exciting expiration day I have ever seen.  Perfect indecision.  SPY had a perfect doji closing exactly on the open to the penny.  You don't see that very often.

SPX did not get up to test the all time intrday high.  The sellers showed up right on the opening gap up.  Like other days they were not aggressive.  As soon as price started to cave they eased off.  The bulls were able to hold the market up the rest of the day, but that is about all.  Once again there was no follow through to yesterday's strength.  Volume was actually lighter then yesterday if this data is correct.  I see SPY traded 20 million shares less then yesterday so I have no reason to doubt it.  Now that is odd.  Usually expiration day is the heaviest volume day of the month.  To be less then the day before is unheard of.  Are people losing interest due to the long trading range?  The weekly chart has a third hanging man bar in a row.  The story remains the same.  People rush in to buy the dip, but there are  no rally chasers around at the highs.  New highs were a measly 96.  No sign of break out players piling in. 

No confirmed break out of the Keltner channel today.  ADX is still falling.  On a break out move I would think it would be much better to have a rising ADX.  This is the fourth trip above the red line.  Will it stay there this time or not?  Break outs over triple tops usually lead to big moves.  They either work and people pile in or they fail and those that had been holding on fold.  I expect we will get a resolution next week.  One of those two scenarios seems nearly guaranteed to happen.

I heard Art Cashin question today if we actually have a break out.  You know my opinion on that.  We do not at this time.  The bulls need to muster up another strong day and clearly get above the range.  Monday's have been bullish all year.  Maybe they get it done.  If we gap up and the sellers show up in force it could be trouble.  The 18 SMA on the futures chart is up to 2103.  I think that is an appropriate bull/bear line for next week.  I think things are about to get more interesting one way or the other.

While studying the economic data available on the internet I noticed industrial production is very important and usually has smaller revisions then many other data series.  That series has data back to 1947 it covers many recessions.  I found recession odds increased dramatically when it falls below its 12 month MA.  At some point in every recession it starts to drop like a rock.  Here is a look at the last 5 years.

One thing I find interesting is the late 2011 period.  The ECRI was out in Sept. claiming a recession was unavoidable.  Notice what the IP did.  It was flying up at the time indicating plenty of strength in the economy.  However, that is not the case now.  It has been falling for 5 months.  A lot of the decline is probably due to the falling rig count in the energy sector.  It is very close to the 12 month MA for the first time in this recovery.  This is a clear sign of weakness that was not present last winter when GDP was very negative.  In Feb. last year IP started flying up again.  That has not happened so far this year.  There is an underlying weakness in IP and retail sales data that has not been present at any time in this recovery.  If the climbing inventories cause a cut back in production it will become evident in this indicator in the months ahead. 

A term we used to hear a lot was economic stall speed.  Historically whenever the U.S. economy had 4 quarters of growth at 2% or less it fell into a recession.  We had that condition one time in this recovery without a recession.   It is clear from looking at IP that the economy was not nearly as weak as the GDP data might have indicated.  However, we have a different situation now.  If the economy slows down to stall speed it is much more likely to fall into recession now.  I think the key going forward is going to be retail sales.  If the consumer continues to be cautious or pullback even further the risk of recession will rise.

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


Thursday, May 14, 2015

Daily update 5/14 PPI

SPX makes a new closing high.  It did not quite get up to the intraday high.

The futures were up considerably overnight after the European open on the basis of it being Thursday I guess.  Despite the sizable move volume declined.  The breadth was a whopping +72%.  New highs increased to 104, but at a new closing high that is still pitiful.  New lows were 24 at that.  They should be under 10 when making a new high.  The Dow is the only other index real close to a new high, but it fell a tad short of it today.  The transports lagged again.

Here we are back at the top Keltner channel.  The futures have had trouble getting above here.  At least the DI lines finally crossed positive.  ADX is falling again just like it has on every rally for months.  Not the strongest of charts here. 

We got positive crosses on both the McClellan oscillator and the 10 DMA breadth lines.  This is still a weak chart for a new closing high.  Sometimes the lines do what I call a bounce cross.  At this point they can cross back the other way very easy.  The bulls need to keep pushing us higher.

It looks to me like this is do or die time for an upside break out.  The charts are already in a weak condition.  A break out failure would likely add considerable selling pressure.  SPX only made 22 points not the 35 I joked about last night.  Therein lies the problem.  We got a new closing high, but not really a break out.  The breadth was super strong and still we did not quite break out.  My best guess is that we are going to fail.  I think there are just too many things wrong.  If we fail we are likely to fail in a big way so pay attention.

I wonder if this chart is keeping Yellen up at night.

In the last 70 years the PPI has only been more negative twice.  This decline goes beyond oil as many commodity prices have declined.  Can the FED even think about raising rates any time soon?  This is another piece of data that indicates we may be headed for a recession.  It will be interesting to see what the statement is at the next FED meeting.


Wednesday, May 13, 2015

Daily update 5/13 Sales data

As I theorized last night people did sell into strength today.

The futures gapped up a bit and spiked up in the first few minutes after the open.  However, it was not long before the sellers showed up and squashed the rally.  The breadth was +66% at 9:50, but by the close it was only +51%.  Volume increased again.  With price in the lower part of the daily range we have to chalk it up as a distribution day.  New highs were a paltry 56 and still in pullback territory.  Not much to write home about for the bulls today.  Over the last seven trading days we have had 5 down days and 2 up days.  Not exactly what up trends are made of.

The futures attempted to conquer resistance at the red line this morning.  However the trip above the line was short lived.  The price action since late March indicates that line is very important along with the 200 SMA (support).  Price appears to be starting to get squeezed between the two.  We are running out of room so it would seem a resolution should not be too far off. 

The transports are back to key support.  There sure are a lot of tests here.  How much longer can it hold?  Will people notice if it breaks?

The charts do not look particularly good in the short term.  However, the sellers still seem to be looking for strength to sell into.  That could change at any time.  The bulls were unable to build on last Friday's rally.  I think the odds of a significant break out from this ugly pattern on the upside are pretty low.  Now that I have said that we will probably rocket up 35 points tomorrow.  Until we break down there is always the chance the bulls get their act together.

The sales data continues to be very soft.  Here is a look at the wholesale data first.  Source

I suspect this many months in decline and negative YOY usually only happens in a recession.  However, this data series is not long enough to be able to say that with any certainty.  I can say this is clearly the weakest this data has been in this recovery.

The inventory to sales ratio keeps on spiking up.  This seems likely to lead to a reduction in orders which will lead to production cuts.  That is how many recessions start.  The risk is elevated now despite what Wall Street economists would have us believe.  Now on to the retail sales data.  Source

This category of retail sales has not been this bad without being associated with a recession.  This is another one of those data series that is not particularly long.  Notice how it held up during the 2011-12 recession scare period.  It is clearly the weakest it has been in this recovery.

Core retail sales is also at recession type levels.  Both of these charts show dips from the cold 2013-14 winter.  Those dips were followed by strong rebounds once the weather warmed up.  So far that has not been the case this year.  Something is different this time.

I heard some guy on TV saying come on in the water is fine.  Load up on stocks there is no recession in sight.  From where I sit I can see we could be headed for one.  If retail sales data does not pick up here in May it will probably start to become likely.


Tuesday, May 12, 2015

Daily update 5/12 Lumber

Global bond market selling is making stock markets nervous.

Its  kind of funny listening to the stock traders on TV all trying to figure out what is going on in the bond market.  I continue to think it is just a case of over doing it on the upside and correcting.  I am positive it has nothing to do with economic growth or inflation.  The futures gapped down big, but nobody was anxious to sell into that weakness.  That allowed the futures to float up and close the gap.  We ended up down a little bit, but nothing like where we started.  Breadth was -55% which was about in line with the damage done.  The new highs dropped down to 34 while new lows rose to 64.  Those numbers indicate we should be in pullback mode.  TRIN closed at 1.05 so once again no panic.  Volume was a little bit higher then yesterday, but still below the rally days last week.  That indicates sellers were not aggressive.  It probably did not take much buying to keep the market from imploding.  I believe most people are hanging on because they think we will break out on the upside.  This is option expiration week which has a strong upside bias.  It seems like a reasonable bet that we will test the highs some time this week.  The news flow may interfere with that though.  While people were not anxious to sell today into weakness it does not mean they won't sell tomorrow into strength.  Are money managers troubled by what is going on in the bond market?   I can't read people's minds unfortunately.  I am sure they are a bit confused, but whether that leads to selling I cannot say.

The futures gave us a red bar this morning.  However, there was no follow through and we ended the day back above the 18 SMA.  The -DI line hit 35 once again.  I cannot believe how many times that has happened lately.  This is really, really odd.  Bulls could say the bears are trying to break the market down, but are unable to achieve success.  Bears could say the smart money is trying to sell as much as they can without breaking the market down to get the best possible prices.  That is why we are not breaking out on the upside. 

We have gone from nearly unanimous we are going higher to somewhat polarized.  I am starting to see a few more calls for a top here.  I guess that means some bulls are jumping ship.   There is clearly some group responsible for keeping SPX above the 100 DMA.  It is also clear they are having a tougher and tougher time doing that.  Unlike the last couple of years new highs are getting very hard to come by.  The transports had a very bad day and are barely hanging in there.  If they don't get some real upside follow through soon they are going to break down.  That could be unsettling for some money managers. 

We are in never never land tonight.  We have done some technical damage in the short term, but not enough to say we will follow through on the downside.  Europe was down much more then we were.  They might have a bit of a bounce back in the morning that could give the U.S. a positive start.  If those markets continue down instead we could see more significant selling tomorrow.

Almost everybody has heard of copper referred to as doctor copper with a PHD in economics.  Lumber is much less talked about, but may be as good or even better.  Here are some interesting charts.


Over the last 20 years it appears lumber did a pretty good job as a leading indicator for GDP. 


This chart goes back even further and also shows a leading relationship to manufacturing data.  Here is a look at the last five years of lumber prices.

For some reason lumber has been falling off a cliff since the start of the year.  I don't know why.  I think this is yet another sign of caution for the U.S. economy.  Notice that big spike up in late 2012.  That was the hurricane Sandy affect.  The economy picked up considerably from the 2012 lull.  Lumber did a good job as a leading indicator.  If it is leading this time we will continue to see soft data.


Monday, May 11, 2015

Daily update 5/11 Employment data

I guess there was a little buyers remorse today.

SPX fell .5% on very light volume.  In other words it did not take much in the way of selling pressure to send us lower.  There was no buying interest at the high whatsoever today.  The breadth ended at -62% which is a bit high for a pause type day.  This looked more like we are starting back down again. 

The futures are back below the 6 SMA, but still above the 18.  So far they have not got out of the Keltner channel at all on this rally attempt.  Even the DI lines did not get a positive cross.  This is the third cross above the red resistance line.  The other two times the rally was over when the futures closed below the 6 SMA.  Will it be different this time?  The bulls are being good little dip buyers, but rally chasers are missing in action. 

We are largely through the earnings season now.  Apparently the earnings were not good enough to propel the market higher.  What will it take?

Downside follow through tomorrow likely means we are headed back down.  If this thing is going to break out on the upside the bulls need to show up and be willing to chase price higher.

While the market cheered Friday's employment report there are some things I find disturbing.  Look at this chart of how the jobs were distributed through various age groups


The 55-69 age group increased by more jobs then the total increase in the report.  The most important group 25-54 actually lost jobs.  This age group has not been doing particularly well in this recovery to begin with.  This next chart shows just how bad it is.


All the jobs are going to older workers.  There is just no way this is good for the economy in the long run.  The 25-54 age group is key when it comes to growing the economy.  They are the ones that are in various stages of getting married, buying homes and raising families.  They are supposed to be the ones spending the bulk of the money that flows through the economy.  The problem is we are getting ever closer to the next recession.  The current expansion is already one of the longest in history.  Would another 2-3 years of expansion fix things for this age group?  I kind of doubt it and the odds of us getting another 2-3 years are probably pretty low.  The source of the problem is the lack of full time jobs being created in this recovery.  The older age group is likely to be much happier working part time then the 25-54 year old workers.  This report that was cheered by the market actually showed over 200,000 full time jobs lost last month.  Creating 200,000 part time jobs every month is not going to fix things.  The quality of the jobs really matters.  In this recovery quality jobs have been in short supply.  Many of them were in the energy industry which is now under severe stress.


Friday, May 8, 2015

Daily update 5/8 Margin debt

Today the market liked the employment report.  I suspect they won't like things quite as much next week. 

We started the day with a 20 point gap up in the futures.  I am sure that caught a lot of people short.  Even so there was not enough short covering to get SPX to a new high.  Breadth was a super strong +78%.  However, new highs were only 79.  SPX ended only 1 point below its closing high.  That makes that new high number worse then pitiful.  Besides the Dow the other major indexes are much further away from their highs.  That makes this still look like money moving to the biggest of the big cap stocks.  The usual defensive move for money managers that must stay invested.  SPX has been unable to stay above 2100 for long.  It will be pretty shocking to me if it manages it this time.

Despite the moonshot in price the DI lines still did not get a positive crossover.  Even the MACD is still slightly negative.  However it should cross positive on the next bar.  Needless to say this is not a strong chart technically for testing a high.  I think it will be a hard slog to truly break out.  The breadth chart backs that up.

Both the 10 DMA lines and the McClellan oscillator are still negative.  Tests of highs in this condition usually lead to a 5% or larger pullback.  I don't see any reason to believe it will be different this time.  With this long of a trading range a pullback could easily be larger then normal.  I saw this interesting stat on this extremely low volatility trading range in Contained? Dow "Range-Bound" Streak Reaches Longest Ever.
On April 24, we posted what we thought (and hoped) would be our final post concerning the stock market’s lengthy trading range. In the post we noted that for only the 8th time in 100 years, the Dow Jones Industrial Average (DJIA) had made it to 30 days without hitting either a 1-month high or low. It was, in our view, a pretty remarkable stat. Little did we know, however, that 8 days later, the streak would still be alive. And at 38 consecutive days, it is now the longest such streak in at least 100 years. The only longer streak in history occurred in 1910 and lasted 45 days (although the daily data from that era is a little sketchy so it’s possible that our current streak is the longest ever.)

That milestone alone would justify an update to the April 24 post. However, there is yet another angle to this streak that is pretty remarkable. The current 1-month range in the DJIA is a very tight 1.58%. It is so tight in fact that it accounts for the 17th narrowest 1-month range since 1990. For those scoring at home, that places it in the 0.6th percentile of all 1-month ranges. In that context, the DJIA’s record streak without a 1-month high or low is that much more amazing considering how low the bar has been for achieving a new high or low.

Today's up move turned the short term trends to neutral across the board.  A retest of the high usually goes better if the trend is already up.  With R2000 and COMPX considerably weaker then SPX it is very unlikely we are ready to explode higher.  The Dow climbed above its April high though so the streak mentioned above has ended.  It is a bit below its March high.  The SPX weekly chart now has back to back hanging man bars.  The plot thickens.

Recently there has been much discussion of margin debt in the blogosphere.  Many are trying to say it is not a problem.  Don't worry.  If I have learned anything about markets over the last 15 years is that when Wall Street pours out people saying something isn't a problem it usually is.  In the last year I have seen many articles on "new valuation methods" that show the market is not over valued.  Now they are working on the margin debt is not a problem theme.  Every major decline except the 73-74 bear market has had excessive margin debt at the top.  The crash of 87 (-35%) was actually the smallest move down with margin debt above 2% of GDP.  The others have been on the order of 50%.  It is a problem.  However, like everything else in the markets it does not matter until it matters.  Margin debt does not unwind with the market going up.  The 2000-2002 bear market was the gentlest unwind in the last 100 years.  It is usually more like 1929, 1987, and 2008.  Lets look at some charts.  Here is the latest look from Doug Short

Notice the free credit balance is much lower then even the 2000 bubble.  This backs up the comments I posted a while back from the TD Ameritrade CEO saying investors were all in.  Here is another look.

This one shows real margin debt well above the prior two bull market tops.  Notice how much more in percentage terms the debt went up over the price of SPX.  The run up into 2000 only separated near the top.  I don't know if that helped make that bear market less dramatic then other margin debt unwinds or not.  The run up into 2007 had much more separation.  The separation this time is even more dramatic. 

This an interesting article claiming margin debt is a problem and here is why.  Why Record-High Margin Debt Should Make You More Cautious  I like articles with data to back up the assertions.  Check out these charts.

Here are the real statistics: Over the past 20 years, the level of margin debt relative to the economy has had nearly an 80% negative correlation to future 3-year returns in the stock market. What this means is, the higher the level of margin debt relative to GDP, the lower the returns for the stock market over the coming 3 years and vice versa. “Statistically bogus?” I think not.

So what is the current level of margin debt suggesting for the next 3 years in stocks? Considering that margin debt-to-GDP is near an all-time record high, it forecasts returns over the coming 3 years could very well be as bad as any bear market we have witnessed over the past 20 years. Specifically, it forecasts a negative 3-year return of 50%. Maybe this is one reason Julian Robertson recently said it’s not “ridiculous” to expect another 2008-size decline in the stock market.

At some point this massive margin debt will unwind.  It is just a question of when.  I think it would take a miracle for this to unwind with less then a 40% decline.  I think it is likely to be much larger then that.  John Hussman says it is better to panic before everybody else does.  I think this is going to be a very good example of that.  I am not aware of a third bubble this close in time at any time in the past.  I think the exit is going to get extremely crowded at some point.

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



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