Daily update 6/30 Transports

We got the expected bounce, but there was some significant selling into strength.

Because of a rather large overnight gap up (on  nothing that I could see) SPX started out the day in the 2070 resistance area.  Sellers took hold immediately and sent SPX down for a test of yesterday's low.  That low held and SPX bounced back into 2070 resistance and again sold off.  Breadth was 60% positive.  Not too bad.  However, new highs were a paltry 23.  New lows remained high at 238.  SPX did not touch the 200 SMA today.  I don't really like consolidations just above an MA like this.  It seems like most of the time they go through the MA then either reverse or keep going.

The futures show a clear consolidation here.  Both support and resistance held today.

July is historically the strongest of the summer months for stocks.  However, the kind of weakness we had in the internals before this decline usually lead to a bigger decline then we have had so far.  Because of the potential for a mini cascade down I don't think it is wise to rush in on the long side.  I think it is time to play it safe and let the market give us a sign it is ready to go up.

Lets take a look at the monthly chart for DJ20.

The transports ended June with a close below their 20 SMA.  That is quite a precipitous decline especially considering the rest of the market hasn't done anything like that.  It has been down four months in a row and six of the last seven.  Kind of hard to make an argument the economy is getting better even though the pundits are trying.  Something seems amiss.  The selling may be a little overdone in the short term.  It would not be surprising for this index to find support around here.  If it doesn't then the economy could be in much worse shape then we know at this moment.  To get out of trouble we need to see a really strong bounce within a few weeks though.

When I updated the monthly data in the market status page I noticed we now have 5 out of 10 red monthly charts.  We have not had that many red charts since the big sell off in 2011.  Another reason for a little caution here.

Bob

Daily update 6/29 Smack

I guess Greece was not priced in as many had speculated.

That looks like a valid head and shoulders top pattern.  The measured move for it should be around 2000.  Both the breadth and the down side volume were over 90% today.  We have not had one of those days since 6/20/13 during the infamous taper tantrum.  New highs dropped down to 25 while new lows sky rocketed to 331.  We broke the key support line around 2070 with a vengeance.  TRIN came in at 1.9.  That is a little short of the 2 level I like for a bounce, but pretty close.  The real question is whether the 100 DMA support crowd is still interested in supporting that line.  This is the first close below that MA on this pullback.  That has been a buy signal for two years now.  Will they show up again or was that them bailing out today?  There is only 4 points down to the 200 SMA.  A bounce without touching that would be a little suspicious since we are this close.

The futures are tying to hold the 5/7 overnight low.  If they fail to hold here the next support level on the futures is down about another 25 points. 

While we now have a short term oversold condition we also just broke down from a multi month H&S top.  There is likely to be resistance up in the 2070 area now.  A retest of the neck line area is a common thing to do.  The VIX busted up through the resistance in the 15.50 area.  Is this signaling the end of the ultra low volatility we have been having the last three years?  Its too soon to know, but it is a possibility. 

After such a violent day it is common to bounce the next day.  However, internals were already weak before today so more down is certainly possible.  Especially since we just broke down from a top looking pattern.  I don't think there is a real big hurry to get long.  The bulls have some work to do now.

Needless to say today turned all the short term trends down.

Bob

Daily update 6/26 ECRI paper on recessions and recoveries

That was a very mixed day.  Lots of cross currents.  Check out the SOX index.

SPX closed fractionally below yesterday's low.  Not enough to say we have confirmation of the break of the 20 SMA though.  Today's low was right at the key 100 SMA.  We have been sideways for so long it did not take much of a pullback to touch it.  We don't even have a red price bar yet.  We are not going to be able to get a decent oversold condition around that MA this time.  Will buyers rush in anyway?  The breadth was -58%.  I don't know if my new high data is stuck or not.  It shows this to be the third day in a row of 84 new highs.  The WSJ site says there were 88.  New lows shot up to 193.  Stocks continue to break down. 

The futures hit the lower channel line this afternoon and bounced.  This is a good setup for a bounce on Monday.  News permitting of course.  There could definitely be Greece news.  I have heard rumblings that a deal must be struck before the markets open on Monday.  I guess we will see what that is.

In the absence of bad news a bounce on Monday seems likely.  However, in this news driven environment who knows.  While we hit the 100 DMA today the buy signal has been a close below that line not a touch.  The VIX has not touched 15 yet on this decline.  The 15 level has brought buyers in a few times the last couple of months.  We don't seem to have any oversold ammo for anything but a dead cat bounce at the moment.  We are still very weak internally.  The kind of weakness that can lead to a mini waterfall decline.  The bulls really need to show some strength.

I found this research paper pretty interesting from the ECRI.  Shifting Patterns in Recessions and Recoveries  This is just one of many interesting charts in the presentation.

Despite export prices dropping, volume is not really picking up.  Many economists expect a pickup in the global economy largely because of the price drop.  We will see if it materializes.  The paper is well worth the few minutes it takes to read.

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

Bob

Daily update 6/25 P&F chart

Downside follow through.  Since we started with a gap up the selling was not overnight news induced.  On top of Greece worries people seem to be noticing the transports are seriously breaking down.  Funny how things don't matter until all of a sudden they become important.

SPX closed slightly below the 20 SMA.  Are we headed back to the bottom of the channel?  Breadth was -62%.  Since we started with a gap up and positive breadth that was a pretty strong turn around.  New highs came in at 84 close to yesterday's number.  However, new lows shot up to 108.  Those stats would seem to indicate we are in pullback mode again.

The futures closed below the 100 SMA.  We don't have confirmation of a break yet though.  We also don't have any kind of an oversold condition either.  We could always get a bounce from the 50 SMA.

We have not had enough selling yet to classify any of the indexes as a short term down trend.  However, internals sure are weak.  That last pullback dinged them rather hard, and this bounce did little to repair the damage.  Here is the number of SPX stocks above their 200 MA as an example.

 
Some article I read talked about 60 being the point where the author starts to worry about the market.  We are there for the second time in the last couple of weeks.  I have spent a little time studying the last 15 years or so of this indicator and it appears it might work pretty well as a sign to hedge long exposure.  It looks like the bulls are on the ropes here.  After two down days in a row they might try to rally the troops tomorrow.  If not things might start to get a little dicey.  A weak bounce is not likely to help the bullish case.  They need to show some strength.

A blog reader (tnx Rick) was kind enough to send a link to this chart and noted support levels at 2070, 1990, and 1830.  Here is a marked up chart.

My studies of P&F charts are are severely lacking.  This chart presents a clear picture of where support is likely to be though.  Maybe I need to get a little more familiar with them.

Bob

Daily update 6/24 Number of publicly traded companies

Was that Greece worries coming back yet again?

SPX is back below the lower channel trend line again.  Volume picked up a bit today.  The breadth was a broad based -67%.  New highs dropped way down to 84.  New lows were in the same area at 45.  We are back below 2110.  My theory was that would indicate we were in pullback mode again.  The bears need to see follow through on the downside for that to be a reality.  The news flow may determine whether that happens or not.

The decline stopped with the futures sitting on the 100 SMA.  The last time we were here we bounced.  This time we have red bars and a confirming lower close.   The bears have a little better odds this time. 

Both breadth indicators have negative crossovers today.  They have spent very little time in positive territory since May.  We have seen this a few times in this bull market.  The end result has usually been an upside break out.  However, in those instances we did not have so many stocks breaking down.  I don't think an upside break out is in the cards this time.

The stage is set for the bears to take control, but will they pounce.  Tomorrow is Thursday and most of the time that has been a rally day this year.  We have seen some big up days at that.  With the futures sitting on the 100 SMA that could easily happen again.  It probably will come down to the news flow tomorrow.  Should we continue down key support is around SPX 2072.  I think the market gets into real trouble if that breaks.


This was an interesting article about how much the number of public companies has decreased.  Where Have All the Public Companies Gone?  This chart was in there.

In contrast, mergers and acquisitions were a much larger source of delistings. The U.S. experienced an unusually high number of merger-related delistings after 1996 compared with both the U.S. historically and other countries. "From 1997 to 2012, the U.S. had 8,327 delists, of which 4,957 were due to mergers," the researchers wrote. This accounts for almost 45 percent of the delistings after the 1996 peak.

I guess my math is a bit different.  I think the mergers account for 59% of the delists not 45%.  At any rate there sure are a lot fewer companies out there these days.  The way we are going there will only be the 500 companies in SPX left some day. 

Bob

Daily update 6/23 Durable goods

ZZZZZZ.  They were a bit excited for the new highs in the COMPX and the Russell2000.  They are also hot to trot on the financials on TV.

Back to back doji bars on SPY.  Today was an inside day and a very narrow range.  This market has tended not to go much further after a narrow range day at the highs.  It might take a few more days before a pullback, but the upside could be tough to come by.  SPX hasn't quite made a new high yet.  There is a serious lack of buying interest up here.  I still think it has a lot to do with not getting a good oversold condition to start a rally with.  Buyers rush in too quick on the pullbacks.  Then nobody is interested in chasing it higher.  New highs dropped down to 146.  New lows actually increased to 51.  Still way to high for a launch.  Breadth was +56%.

The futures have stalled over the last few bars at resistance.  Are we going to go or reverse?  The ADX is still falling.  That kind of makes predicting an upside break out a bit tough.  I think it will take some positive news event. 

While most indexes were up the number of SPX stocks above their 50 and 200 DMAs actually fell.  Not a very good vote of confidence for the bulls at this stage of the bounce.  I will be watching for a close below 2110 as a bull/bear pivot.  In the mean time lets see what the bulls have.

There was nothing particularly good in the core durable goods number this morning.

Yet another month of negative YOY comparisons.  This chart does not look like a particularly good time to be talking about a rate hike.  Here is a look at the core capex chart.

This one is a little less negative YOY then last month, but still nothing to write home about.  The pundits are talking the economy up, but I just don't see it.  While we are not in a recession, I don't see any sign of major improvement going on.  It still looks like a bit of a soft patch.

Bob

Daily update 6/22 ECRI U.S. coincident index growth (USCIg)

SPY made an almost perfect doji.  All the gains were in the overnight hours.

SPX failed to make a new high close.  Volume dropped considerably.  New highs increased to 172.  That is the highest since March.  New lows remain elevated at 46.  I don't think that is good enough to drive the market higher.  The breadth was only +58%.  That is pretty low for the size of the move.  SPX hit the upper Keltner channel today.  As you can see it has struggled to go up the last couple of months after that.  I can't find anything in the internals that suggest we are going through a positive change of character.  There are quite a few indicators weaker then when we were last in this area.  Unless we get a a really strong thrust day through the highs we are likely to roll over again.

The futures popped up overnight on more Greece deal news.  Of course we don't actually have a deal, but we would not want to ruin a good story with facts.  It was Monday and a good day to rally.  Just like every other rally over the last couple of months ADX is falling again.  Are we going to be able to sustain these price highs this time?

The song remains the same.  When SPX gets above 2110 it just runs out of energy.  Here is a look at the number of SPX stocks above their 200 DMA.

The last pullback really dinged this indicator.  That is a bit odd given the small size of the pullback.  Apparently the trading range is causing many stocks to have their 200 DMA catch up to their price.  It takes very little sell off for them to fall through it.  Therein lies the problem.  Price is not giving a good over sold condition to bring in the buyers.  At the same time the market appears to keep getting weaker with every test of the highs. 

Tuesdays have been down most of the time this year.  Will that pattern play out tomorrow?  I would guess a close below 2110 might bring out some sellers again.  A small up day with a slight new high here does not help the bull case.  The bulls need to see a strong thrust.


When I was perusing the available economic data I came across the ECRI  USCIg.  This index is their attempt to measure the current strength of the economy.

We can see that 2013 and 2014 showed good strong growth.  However, this year has been quite different.  This index is at 2.5 currently.  The key number is 1.5.  Dropping below that greatly increases the odds of a recession.  Like other economic data series this one is prone to revisions.  It would need to still be there when the next month's data comes out before getting too worried.  Going negative would indicate with pretty high odd we are in a recession.  You can find the data here.
https://www.businesscycle.com/ecri-reports-indexes/all-indexes  Needless to say this does not look like the best time to raise rates.  Will the economy turn back up or keep faltering?

Bob

Daily update 6/19 The Perils of Low Liquidity and High Leverage

There was a little buyers remorse today.

There is a slight change to the chart.  The magenta Keltner 50 channel has been changed to a blue 20.  I spent time studying it and it appears to be more relevant.  The Blue MA in the center was also changed from 18 to 20.  They actually track pretty close anyway so that is not a big deal.  Yesterday SPX stuck its head back up above the lower trend channel line, but was turned back again.  This is the second time it has done that.  Not exactly the most bullish action there.  New highs were 104 and new lows came in at 65.  Not very promising.  The breadth was -57%  which was not particularly negative based on the size of the move down in SPX.  IWM held up much better.  The selling was more focused on the big caps.  Probably Greece related.

The futures moved down enough today to give a negative cross on the DI lines.  I mentioned last night that for the last few months whenever price got extended from the 18 SMA it tended to reverse.  Still happening.  Now the futures are resting on the 100 SMA which could act as support.  The bounce still has a chance to stay alive.  Downside follow through on Monday is likely to kill it though.

I heard on TV today that the Stock Trader's almanac came out and said the week after the June option expiration has been down 22 of the last 25 years.  With that information widely known we will either go up (fool the most people) or go down big (self fulfilling prophecy).  There could be plenty more Greece headlines.  This market is waffling all around on headlines.  Doesn't that indicate a lot of uncertainty on the part of investors?  I can certainly understand why that would be.  Since my crystal ball seems to be on the blink I will not even try to predict what happens next. 

This is a pretty interesting article.  The Perils of Low Liquidity and High Leverage  Here is a snippet to whet your appetite.

The second key factor has to do with leverage. Large investors, such as those that use risk parity strategies, are using a lot of it, and since they invest across asset classes, losses in one asset class can force a broad sell-off in others as managers rush to meet margin calls.

Rising correlations are particularly troublesome for risk parity funds, which target a specific level of risk and spread it equally between risky assets, such as stocks, credit, commodities and safe assets such as government bonds. Again, this is fairly easy to manage in normal times when bonds and stocks are negatively correlated. But when they decline in tandem, the risk contribution from both assets rises. Managers must sell both to maintain a portfolio’s risk target. In other words, selling begets selling.

Leverage plays a part here, too. That’s because bonds are less volatile than stocks, so managers typically have to lever them up to equalize their risk contributions.
In a similar vein, the growing popularity of “risk-managed” insurance products is contributing to these correlated moves. Because these products offer certain guarantees to policyholders, insurance companies must keep volatility under a certain level to minimize losses. This means managers must sell assets to reduce risk whenever risk limits are breached.

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

Bob

Daily update 6/18 Paul Tudor Jones

Quite the buying explosion.  The Russell2000 and COMPX both made new closing highs.  The COMPX actually got above its 2000 bubble high intraday, but closed right on the number.  The totally random market sure does have some interesting coincidences.

So another test of the high it is.  Volume picked up a good bit today.  I don't know how much was short covering and how much was new money.  The breadth ended the day at +64% despite being +73% at the intraday high.  There was considerable selling into the strength.  New highs increased a bit to 122.  Still not enough to show excitement by buyers.  The new lows remain quite elevated for this close to the highs at 51.  The stats do not really indicate this is a launch.  The bulls need follow through and a blast out to new highs in the lagging indexes. 

The futures are once again up into resistance.  They are pretty extended from the 18 SMA now.  Will they find buyers or sellers up here?  Over the last few months they have been reversing whenever they get extended like that.  I don't see anything at the moment that makes me think it will be different this time.  It is all up to the bulls to keep up the buying pressure.

I talked about the bearish sentiment in the AAII survey yesterday.  Here is a look at the NAAIM survey.

The active money managers have the lowest long allocation since coming off the Oct. low last year.  If they decide to pile into the market there is upside fuel now.  They could always decide to sell into the strength and reduce exposure even more though.

From what I heard today there were three separate things driving the move.  There was positive news in the biotech sector which pushed IBB up over 3%.  I suspect this was behind the new highs in IWM and COMPX.  They both have quite a few biotechs in them.   There also seemed to be an idea that the FED comments yesterday mean one rate hike and done.  On top of all that there was a rumor floating around something about money for Greece til the end of the year.  The question is what happens now.  While the futures are a bit extended in the short term there is no long term overbought condition.  Sentiment is not overly bullish.  It may even be a bit on the bearish side.  Have the sellers finished their business?  Will bulls show up and outnumber them even if they haven't? 

There is a very interesting video in this article.  Well worth the few minutes to watch.  TED Talk: Paul Tudor Jones Discusses Profit Mania

Bob

Daily update 6/17 AAII buy signal?

Interesting day.  There was both significant buying and selling going on.

This morning SPY stuck its head above the high of the 6/12 big gap down day.  It then sold off rather significantly before the FED announcement.  After the FED announcement SPY ran up to a new intraday high and closed that gap down.  There are no more gaps left above.  SPX briefly rose above both the 18 and 50 SMAs, but dropped back below at the close.  The breadth was just slightly positive.  New highs increased to 93 while new lows held steady at 77.  Those stats remain a negative. 

The futures were above 100 and below the 200 SMAs today, but settled in between.  This market continues to try not to go anywhere.  I guess one day it will break loose.

Greece may be back in the news tomorrow which could impact markets.  You can't predict this stuff.  Since we don't have any trend to work with the market is just floundering around.  However, it looks like we are getting close to a precipice.  If the bulls don't get going we are likely to do some cliff diving.  SPX is stuck between the 18 and 50 DMAs above and the 100 below.  Until we break out there is not much more to say.

This is an interesting article on the AAII survey.  Indicator of the Week: Why Extreme AAII Pessimism Marks a Buying Opportunity  Here is a table of results since 1990.

The results look pretty good don't they.  Only one time was the market down 6 months later.  Another time it was basically flat.  What this table doesn't tell you was what happened before the low reading in the survey.  The 8/21/1992 was the only time it happened when SPX was less then 5% off its high.  It was only 2.6% then which is very similar to now.  The only other instance where SPX was still above the 200 DMA when the signal happened was 5/14/1993.  That pullback was about 5%.  The 6 month returns from those two instances were only 4-5%.  Of all the instances those are closest to the current conditions based on SPX.  Just keep in mind that 1990 had a recession and a 17% sell off in SPX.  We have not had even a 10% correction since 2011.  We have not had a recession since 2009.  In 1992 and 1993 nominal GDP was over 5% instead of the 3.5% we have had in this recovery.  The overall conditions are not very close to any of these prior instances.  The 2/9/1990 and 1/18/2008 instances were actually pretty good calls by the AAII members as both years contained a recession and sizable sell offs in SPX.  At best the 6 month returns from here will probably be muted. It is also possible the AAII people end up making a good call and we end up lower then we are now later in the year.  I don't know if this matters at all, but valuation is much higher now then in any other instance.  I also find it interesting that despite a near 50% sell off in SPX there was no instance of this kind of bearishness in the 2000-2002 bear market until after it was over.   Seems odd.  No fear until too late.

I don't know how this might affect where we are 6 months from now, but this story is making the rounds.  If enough people see it and believe it is signaling a buying op we could see some more upside in the short term.

Bob

Daily update 6/16

The 100 DMA buyers showed up once again.

The dip buyers are definitely persistent.   Then again so have been the rally sellers.  Breadth was +61% which was inline with the size of the move.  There were 69 new highs and 84 new lows.  Nothing new there.  It looks like more of the same to me. 

The futures got back above the 18 and 200 SMAs.  They are still below the 50 and 100 though.  I don't see any sign the sellers are exhausted so I suspect they will show up again at higher prices.  Resistance has been pretty fungible lately so its a bit hard to say where.  The last swing high stopped at 2110.  While we have traded through that level a number of times we have not been able to stay above it.  At this point I don't see any reason to believe it will be different this time. 

Tomorrow is FED day.  I will not try to predict will do or how the market will react.  If that is not enough Greece heats up again on Thursday.  There was word today that Angela Merkel is still insisting there will be a deal.  I read somewhere it has to happen by Thursday so they have enough time for everybody to vote on the deal.  It sounds like there is a really big gap between the two sides.  It seems monumental to come up with a deal by then.  It could easily be Friday before we get much clarity on the future direction here.  The short term trend is back to neutral again tonight.

Bob

Daily update 6/15 Industrial production (IP) warning

Two down Mondays in a row.  I wonder if that is an aberration or is the Monday up pattern we have had this year breaking down.

SPX closed below the 100 DMA again.  The TRIN was 1.75 which is below 2.  That might not be high enough to bring out the buyers in force.  The breadth was -63%.  It started the day way worse then that, but it appeared that money managers were not interested in selling into the big gap down.  That has been the pattern in recent months.  People have been looking to sell into strength, not weakness.  There were enough dip buyers to keep the market above the open at the close.  However, they were not ambitious enough to push price up to close the gap.  We now have two open gaps above.  That is a condition that has been pretty rare if it even existed the last few years.  Will the bulls close those gaps yet again?  There were 49 new highs and 120 new lows.  Stocks continue to break down.

The futures are back below the 200 SMA again.  The bulls fumbled their attempt to get the market going up.  Will the bears pounce or will bulls give it another try?  We have red price bars, but the futures are still above support.  This chart is fully bearish once again.  Over the last couple of months that has meant time for a bounce.  Will this time be different or not?

Here we are once again with SPX below the 100 DMA.  The VIX closed above 15 which is a level it has had trouble staying above the last couple of months.  Will this time be the charm?  Everything seems to suggest we are likely to continue down from here.  The bulls have been supporting the 100 DMA for two years.  If they are unable to do so now there could be quite a rush for the exits.  We are in a weak technical condition which could exacerbate the selling.  In other words we could get a waterfall decline here.  If the bulls are going to pull off another stick save they need to show up in force tomorrow and not get shy when price gets over 2110. 

Here is a chart with the latest IP data.

The latest reading is below the key 12 month MA.  This is the first time that has happened since crossing above that MA in 2009.  This is a pretty big caution sign on the economy.  This is the closest we have come to going into a recession in this recovery.  Not every historical cross leads to a recession, but every recession has a cross.  If IP continues to fall it will definitely be hard for the FED to make a case to raise rates.  It will also make it easier for the economy to fall into recession.  I still think the key is going to be a pick up in retail sales.  We saw that in May, but we need to see that continue.  Inventories are still high so if sales falter again production cuts could be the next thing that happens.  That could hit employment.  While the pundits are happy to tell us the economy is getting stronger, that is clearly not the case.  Every month IP falls it increases the risk of recession.  However, it can turn up strongly without warning.  If it starts to drop precipitously then we are in a recession.  I will be watching this one closely every month.

Bob

Daily update 6/12 ECRI admits there was no recession in 2012

Oops, sorry.  Greece is not solved after all.  Who could have imagined that?

That looks like a kiss good bye of the trend line.  The breadth was -62% which is about right with the size of the move.  New highs dropped way down to 50.  New lows were about the same as yesterday at 87.  TRIN was 1.87.  That is showing a hint of selling pressure without being real panicky.  Over two would have been a better chance to bring out buyers on Monday.  Is it just me or does this chart look a little bearish?

We have white price bars already.  That greatly lowers the odds the move up is anything to be taken serious.  We have seen price bars stay green for weeks after a low when the market was truly in a bull move.  This pattern just looks like all the other rally attempts over the last few months.  We have a confirmed break of the 100 SMA and both indicators have negative crossovers.  The only positive I can see in this chart is that we are still above the 18 SMA.  The bulls still could come to the rescue here.  Most Monday's have been up this year.  I think they would have to really show up in force to get this market out of trouble though.

Greece is solved rumors come out every now and then, but they seem to be having less and less affect on price.  Are people starting to think there will be no kicking the can this time.  I saw this interesting article.  EU holds first talks on Greek default as Athens holds out hope

EU officials have held their first formal talks on the possibility of a Greek default, officials said on Friday, but the darkening outlook failed to fluster Prime Minister Alexis Tsipras, who holed up with his negotiators after proclaiming optimism at an open air concert.

It is clear to most people with a functioning brain that Greece cannot possibly pay back their debt.  It is about time they get down to it.  I have no idea how this is going to work out and it certainly could have real and material impacts on stocks and bonds.  All I know for sure is that the market is in a weakened condition.  The kind of condition that can have a mini waterfall decline if sellers get impatient.  Complacency seems very high to me.  The VIX imploded on the rally the other day.  There is a prevailing feeling that everything will be all right and we are going to break out on the upside.  If that does not happen look out below.

The ECRI predicted the U.S. was going to have an unavoidable recession in Sept. 2011.  Later they said the epicenter of the recession happened in the middle of 2012.  They finally had to admit there was no recession when the data revisions were all in for that time period.  This is a pretty interesting read on what happened.  The Greater Moderation  While they missed the call the economy did slow down considerably.  I would not dismiss their future calls because of this event.  They will likely be right next time and make the call before nearly everybody else.

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

Bob

Daily update 6/11 Phony earnings

A little more up, but no fireworks.

SPX tested above the 18 SMA, but failed to stay there.  It looks like we  are sitting right near that lower trend line.  This could be a kiss good bye as we did not really get clearly back above it.  The bulls still need to push higher here.  The breadth was a +54%.  New highs dropped to 106 while new lows increased to 90.  Definitely not numbers that would indicate this is a launch.  If we don't roll over tomorrow we could still test the highs again.  However, I don't think we will get significantly higher unless we see some real strength.  The buying seems to dry up above 2110.

We have green bars and positive crossovers on the indicators.  The bulls should be in control here.  It is just a question of whether they want to push price higher or not.

This decline really whacked market internals.  This bounce could be just a pump job so the big boys could get into some shorts.  I just can't say for sure.  If we continue up tomorrow then I think the odds shift to another test of the highs.  If we roll over the selling could pick up considerably since the internals are already weak.  It could depend on what global markets do.  Many of them are a little precarious at the moment. 

When I started trading full time in 2000 I read a lot of earnings reports.  After a few quarters I realized that nearly every company had "one time charges" every quarter.  Really.  I soon quit looking at them since they are obviously nothing but manipulated  numbers.  I found this article kind of interesting.  Experts worry that 'phony numbers' are misleading investors

NEW YORK (AP) -- Those record profits that companies are reporting may not be all they're cracked up to be.

As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they're doing better than they really are.

What's worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they're largely passing along the rosy numbers in reports recommending stocks to investors.

"Companies are tilting the results," says fund manager Tom Brown of Second Curve Capital, "and the analysts are buying it."

Does any of that sound familiar to you?  That part could have been written in 2000.  Anybody remember Henry Blodgett.  That scandal supposedly led to changes in the industry to make the analysts do their job better.  Here is some more interesting stuff.

An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the "adjusted" profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.

At one of every five companies, these "adjusted" profits were higher than net income by 50 percent or more. Many more companies are in that category now than there were five years ago. And some companies that seem profitable on an adjusted basis are actually losing money.

It wasn't supposed to be this way. After the dot-com crash of 2000, companies and analysts vowed to clean up their act and avoid highlighting alternative versions of earnings in a way that could mislead investors.

But Lynn Turner, chief accountant at the Securities and Exchange Commission at the time, says companies are still touting "made-up, phony numbers" as much as they did 15 years ago, perhaps more, and few experts are calling them out on it.

What is that old saying.  The more things change the more they stay the same.  Wall Street firms are in the business of keeping everybody invested so they can collect fees and commissions.  They could care less whether the individual makes money or not.  After the next big crash there will probably be another big scandal and Wall Street will promise once again to clean up their act.  Rinse and repeat.

Here is a graphical look from another article  The Non-GAAP Revulsion Arrives: Experts Throw Up All Over "Made Up, Phony, Smoke And Mirrors" Numbers

Notice when times got a little tough in 2012 the addbacks increased.  That last quarter was ridiculous.  Actual earnings did not come in ok.  Too bad they don't have Q1 updated. 

If you just can't get enough of this topic here is another one.  The Earnings Season "Scandal"  That one has this interesting chart.

While it is normal for earnings to increase considerably more then revenue in percentage terms.  I am not sure the spread is usually that much.

Bob

Daily update 6/10 Stealth bear market

The bulls showed up as expected.  They got a little help from yet another rumor about Greece.

That was quite the short squeeze.  The breadth was +68% which is exactly what it was on the 5/27 big up day.  That one turned out to be a one day wonder on the upside.  There were 125 new highs and 83 new lows.  New highs were almost double the number on 5/27.  However, now lows were also almost double that day's total.  Volume was very close to the same.  Nothing stands out as a sign we are ready to attack the highs.  This may turn out to be another one day wonder.  We will have to wait and see what they do over the next couple of days. 

The futures ran into the 100 SMA and stopped.  We have worked off what oversold condition we had.  Now it is up to rally chasers to send us higher.  If they don't show up then down we will go.  I don't know of any change in the fundamentals.  Today's news was irrelevant in that department.  Unfortunately I am not a mind reader.  All I know is we have not done enough on the upside yet to say we are going higher.

Will the bulls come out and play again tomorrow or not?  I think they need to show some upside progress here.  There are plenty of negatives still hanging out there technically.  The bulls need to prove they mean it this time. 

I heard a guy on TV say that 20% of the SPX stocks are 20% or more off their 52 week highs.  If SPX was down 10% or more that would not be so unusual.  But with the index within spitting distance of a new high that is a big red flag.  This bull market is getting even thinner then I realized.  I took a look at the broader Russell3000 index and found about 35% of its stocks are down 20% or more.  That is how bear markets start.  I have mentioned a number of times about how exhausted the market looks.  Its clearly running on fumes and it looks like those fumes are probably about to run out.

Bob

Daily update 6/9 Wholesale sales

SPY posts a perfect doji.  Buyers were kept in check by world indexes being down to start the day.

SPX did not close below yesterday's low so it did not confirm the break of the 100 SMA.  It was another very odd day in that the breadth was -62%.  Despite that very negative breadth SPX closed flat and most indexes were little changed.  We have seen quite a few odd days this year where the breadth and the size of the moves in the indexes does not seem to match up.  It looks like SPX is trying to hold support here. 

The futures stayed above the overnight low all day today.  They have moved up enough to get a white price bar.  The -DI line has crossed back below the ADX line.  It should be easier to get a bounce going tomorrow then it was today.  Especially the way the market reverses whenever it gets a little extended in ether direction.

A bounce attempt seems inevitable here unless we get some really significant negative news.  Even during the Ebola scare when SPX dropped down below the 200 DMA it put up  a fight at the 100.  A break out above today's high should get some short covering going.  Whether rally chasers show up if we get to higher prices is another thing entirely.  The VIX has been unable to sustain itself above 15 for very long.  That has probably worked against the market making much upside progress.  Lets face it the market is over valued.  I think many people want to see a bigger pullback before putting new money to work.   Will the bulls show up once again like they have been for the last two years?

Wholesale sales finally ticked up in May.

That helped the inventory to sales ratio a bit.

Source

The question is whether this is truly a pick up in sales or more of a restocking affair that is short lived.  We will have to wait for more data to know.  Maybe winter is finally over.

Now for something truly bizarre.  According to Bespoke having a triple crown winner is usually negative for stocks the rest of the year.  Why the Bulls Will Be Rooting for Any Horse BUT American Pharoah

Really, really odd.  Looking at the dates of the past winners they all happened in secular bear markets.  Why is that?  Maybe the hot stock market of the 50s, 60s, 80s, and 90s made people spend more time breeding good stocks then good horses. That actually makes sense.  Stud fees are expensive and the results are a crap shoot.   During secular bull markets it is easier to pick a winning stock.  Maybe after two market crashes a little more money got put into breeding horses.  I see no logical reason for the market to go down after a triple crown winner though.  As they say correlation does not necessarily mean causation.  It will be interesting to see if it is different this time or not though.

Bob