Daily update 9/30 Poor manufacturing data

Nice bounce.  Unfortunately the last day of the month is not a very good predictor of future price action.  Quite often the market reverses the next day.

SPX climbed above the 6 SMA.  Notice how much lower the volume is then the big bounce day off the Aug. low.  That does not scream conviction to me.  The breadth was a decent +73%.  New highs were a pitiful 7 while new lows came in at a still elevated 213.  Not very inspiring.

The futures rallied enough to get a green price bar, but we did not get a higher close to confirm a short term change of direction.  The bulls are going to need more upside tomorrow to prove their case.

The green/red bar chart shows some improvement, but 52% of the stocks still have a red price bar.  Both breadth indicators are still negative as well.

This next chart shows the significant technical damage done to the market.

This is 25 years of a count of the number of stocks in SPX that have their weekly 13EMA above their 34EMA.  The current reading of 19% is below all other occurrences since 1989 except for 1990 and 2008.  The U.S. had a recession both times.   In March of 2008 it got down to 21.5 before the market bounced a couple of months then crashed.  In 1990 the market bottomed and went on to new highs.  This area might be key to whether we crash again like 2008 or more like 1990.  At this time we do not have any technical indication we are making a major bottom.  All we have is a deep oversold condition.  It could always get more oversold.

The buying that started yesterday when SPX got close to its Aug. low continued today.  The bulls still need to prove themselves.  Will they come back again tomorrow?  Maybe, but I am not convinced they will.  If SPX continues up I guess the 20 DMA (1945) would make a reasonable target.  We could just as easily turn back down tomorrow.  

I have talked for months that the increase in inventories was going to cause production cuts if sales did not pick up.  While the FED is running around talking about a good economy and the need to raise rates the reality is quite different.  All regional manufacturing surveys were negative this month for the first time  since 2009.   Here are a couple of charts from Zero Hedge 6 Out Of 6 Fed Surveys Say US Is In Recession

They almost got all negative in 2012, but never did.  This next chart shows how the regional surveys affect the national ISM number.

They tend to track pretty closely.  If the national number tomorrow is above 50 it probably won't be by much.  A key difference between now and 2012 is how the industrial production is behaving.  It never turned down in 2012 like it has this time.  Here is the chart to refresh your memory.

The last 10 months clearly look different then 2012.  The Sept. data is likely to show a drop with the way the manufacturing data came in.  We are perilously close to a recession.

As far as I am concerned the FED is trying to pull the wool over people's eyes by talking about economic strength and raising rates.  If rates were normalized they would probably be talking about easing.  Of course they don't have any room to ease.  I guess the next best thing is to try and convince people everything is good.  I am sure that will work just as well.

Bob