Daily update 10/19 IP and ECRI coincident index

Nothing like starting the week off with a dull day.

Low volatility dull days are not good things when major indexes are below the 200 MA.  Keep that in mind when so many people are talking about how high we are going into year end.  Breadth was -52% even though most indexes were positive.  New highs came in at 63 similar to where they have been lately.  New lows came in at 24 also similar to their recent numbers.  Buyers were shy as I mentioned on Friday they might be.  The major resistance that lies just above is obvious.  I can't blame them.  It is risky buying here.

The futures show the low volatility extended even through overnight hours of late.  Pretty much stalled for the moment.  Which way will she go?

The green/red bar count chart shows the green count down to 37.  The red count is rising, but slowly so far.  The rally is running out of steam.  To go significantly higher the green count will have to turn back up.  Otherwise this rally is about over.

I am totally and completely amazed at the things I read and hear in the media.  One day Cramer said good news was breaking out all over the place.  I even heard them play the clip again.  One thing is sure his news feed is different then mine.  I believe one of the good news items was that China is no longer crashing.  Is that really good news?  It crashed so much a bounce was inevitable.  It is way too early to say it is done going down though.  I am starting to see a number of articles talking about a year end rally.  The fear is totally gone.  The trouble is we are still below a downward sloping 200 DMA.  Take a look for yourself at SPX and VIX spikes above 30.  The only times you will find the VIX dropping below 20 while SPX is still below its 200 is during the two big bear markets of this century.  It is not normal for just a correction within a bull market.  This condition results in lower lows.  Will it be different this time?

The rally is clearly weakening, but that does not mean it won't hang around another day or two.  Can the bulls push prices up to the key 2040-45 major resistance area.  I would view a close back below the 9/17 high (2022) as a sign this rally is likely over.  Until then lets see what the bulls have.

Here is a look at the latest IP data.

Last month was revised upward a bit.  This month was the second month in a row with a negative reading.  This indicates there was no upside follow through from the spike up a couple of months ago.  The IP is still above last spring's readings, but still not going in the right direction.  It is well below the readings from late last year.  No sign of renewed strength yet.

This chart is of the ECRI growth rate of their U.S. coincident index.

The latest reading was 2.2.  The key number for this data series is 1.5.  Like the IP data we see no sign of improvement in the economy yet.  So far the regional manufacturing surveys this month were negative like last month.  Currently it looks unlikely Oct. is turning things around.  This next chart shows more global trouble.

Source

India has been the strongest of the BRIC economies over the last few years (assuming Chinese GDP does not reflect reality).  With both China and India showing double digit drops in exports the global economy is continuing to worsen.

It is clear the U.S. economy is still in slowdown mode.  Unless the data gets revised drastically downwards we are not in recession yet.  However, the IP data shows the economy is the weakest it has been in this entire recovery.  That makes the U.S. vulnerable to a recession.  With the global economy doing so poorly it may be very difficult for the U.S. to avoid trouble.

Bob