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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.


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