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Thursday, August 27, 2015

Daily update 8/27 Durable goods

Bulls showed up in force again.

Quite the V bottom there.  Breadth was +85% which matches up well with the size of the move.  The new highs were still only 5.  New lows dropped way down to 26.  Sellers definitely took a break today.  That move down was so radical that even though we have bounced a long ways off the low there is still plenty of room for more bounce.  We are still 60 points below the 20 SMA.

The futures closed above the 20 SMA today.  They have not confirmed that as a break yet.  That green line up above will likely be significant resistance.  That would be around 2040 on SPX.  That might be doable if global markets behave long enough.  It looks like the bulls are in control in the micro trend. 

The bulls are running with the ball.  Lets see how long they can hang on to it.  I noticed a lot of different opinions from the guests on TV.  About the only thing they agree on is that volatility is likely to stay elevated for a while.  My opinion is that this market is very leveraged and those players got the crap scared out of them.  I am positive a lot of them will want to reduce that leverage and will sell into the rally at some point.  I think it very likely we make lower lows yet this fall.

Sometimes I am amazed at the things I read and hear.  Lately there have been a lot of comments on how the Euro was bought up in a flight to safety trade during the stock collapse.  I am not surprised hearing that from reporters in the media, but I have seen those same comments from market professionals.  This is absolutely crazy.  What happened was simply a  carry trade unwind.  People were shorting the Euro because of the ECB QE and buying up other assets.  They were also doing that with the Yen.  Both currencies popped as those carry trades were yanked off and the currency shorts covered.  No flight to safety involved.  Those happen to be big trading partners for the U.S. so the trade weighted dollar index tanked as a result.  It is the same old thing.  People pile into the trade slowly, but all want out at the same time.  If stocks tank again the currency moves might be different depending on how much of the carry trades still exist. 

People were cheering the good durable goods data.  However, the month to month stuff is really a lot of noise.  When you look at the bigger picture on a year over year basis the picture is clearer, but not very good.

While the latest data ticked up we are still negative.  This is a very weak economy despite what the GDP data says.  The GDP is so unreliable in real time.  The first quarter of 2008 was initially reported with over %3 growth, but was later revised to negative.  There is much better data to use in real time.  A lot of that data is weak.


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