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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.


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