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Monday, August 17, 2015

Daily update 8/17 Commodity crash repurcussions

That was a good trick.  The gap down this morning caused a spike in the VIX.  Even though SPX ended the day up nicely the VIX is higher then it was Friday at the close.  That gives the bulls a bit more breathing room now.

SPX stuck its head above the upper trend line.  Breadth was +58%.  That is not particularly strong for breaking out of the triangle.  The new highs were 95, but once again were beaten by new lows at 154.  Volume was light.  That indicates today's bounce was mostly a lack of sellers.  Most of them are probably in the Hamptons for the rest of the month.  Maybe SPX can test the high again while they are away.  I just noticed today the 50 SMA has crossed below the 100 for the first time since 2012.  We have been going sideways so long the 200 has almost caught up to those MAs.  The end of the trading range might be coming soon.  We are going to either break out to new highs and beyond or end up breaking below the 200.

The futures are back above all key MAs.  They still have the red resistance line to deal with, but they might get through it this time. 

It looks like the bulls have a weak grasp on the market.  They might be able to push it up for another test of the high.  Internally the market is a mess and if we get that high the divergences will be even bigger then the last time.  I don't see anything yet that looks like lift off.  I think it will take some very good fundamental news to make that happen.  That seems to be in short supply these days.  Lets see what the bulls do with the ball now that they have it.

This is an interesting article and chart.  Commodity Prices vs. Corporate Earnings

Will collapsing commodity prices clobber U.S. earnings? In six out of seven cases since 1970, commodity crashes exceeding 20% year-over-year have corresponded with earnings contractions exceeding 10% year-over-year. The lone exception occurred in 1998 when earnings decelerated to zero growth without actually contracting.

Given this track record, a cautious outlook toward second-half earnings is advised. While it’s true that correlation is not causation, history has a funny way or repeating. The current consensus for flat calendar-year operating results seems overly optimistic in the present environment.

Will this be the exception like 1998 or is there a significant risk of a bigger earnings contraction?


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