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Friday, October 2, 2015

Daily update 10/2 Factory orders

The old bad news is good news theme returned today.

Here is what I think happened.  I first noticed the VIX was not up much relative to the size of the gap down.  The market traded sideways after the open.  It was clear there was very little selling interest into the gap down.  Some shorts figured if the market wasn't going to tank on that kind of bad news it wasn't going to so they started to cover.  That caused other shorts to run for the hills.  The investors that believe we just successfully tested the Aug. low jumped on the bandwagon with new long positions.  Up the market went at a furious pace.  Despite the huge move the breadth was only +71%.  The volume was not all that heavy either.  That leads me to believe this is not a launch to new highs.  SPX closed above the 20 SMA which was my target for this bounce.  I didn't expect it to get there in this fashion though!

The futures made it up to the 100 SMA which is also in the area of the upper Keltner channel.  There could be some resistance here.  Will this bounce fail in this area or carry up to the 200 SMA?

The green/red bar chart shows green bars crossed 50 today.  The oversold condition has now been eliminated.   Theoretically the bulls should be in control for now. 

What happens next?  Will people be willing to chase price higher?  The next target on the upside would be the 50 DMA.  I would expect some give back on Monday.  I think the days of the V bottoms and relentless rallies off the low are over.  If selling stays in check then we could head higher.  It is a bit hard to trust a rally built on the economy is so bad the FED will not raise rates theme.  There is always the risk that over the weekend people have a change of heart on whether bad news is really good news.  Lets see if the bulls can maintain control next week.

Today turned the short term trend to neutral in SPX and COMPX.  R2000 didn't do enough yet.

Factory orders came in weak once again.

This is the seventh month in a row the orders came in negative YOY.  While there were a lot of YOY negative reports in 2012, there was a positive one in the middle.  The longest streak was 5 months that year.  The ECRI says that was the weakest non recession in history.  I believe we are even weaker this time based on the retail sales data and industrial production numbers.  Today's miss in the employment number makes the case we are getting close to a recession stronger.  There is still no sign the economy is getting stronger that I can find.  It seems more likely the data for Oct. will be even weaker.

The market and sector status pages have been updated.  Have a great weekend.


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