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Monday, June 15, 2015

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.


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