Daily update 11/30

More often then not the last few years the last day of the month has been negative.  However, it usually gets reversed the next trading day. 

SPX came to rest right on the 20 SMA.  We started with another gap up that found no buyers.  Breadth ended at +54%.  New highs outnumbered new lows 96-58.  This is a bit of an unusual pattern.  Except for today the breadth has been positive every day in this narrow range pattern.  Despite that positive breadth the market could make no headway.  More often in a narrow range there are days with negative breadth and days with positive breadth.  Investors must be avoiding the bigger cap names for some of the smaller ones.  That was very noticeable in the way IWM moved up last week.  Probably the affect of the dollar rally going on.

The futures closed a couple of bars below the 20 SMA.  There was no confirmed break though.  Usually that means they are going to bounce from here.  20 SMA support has caught up to resistance. That should mean resolution of this trading range should be coming very soon.

The first of the month is usually positive so in the absence of bad news we are likely to get a gap up and rally.  When faced with resistance that cannot be beat during regular market hours the bulls have often bid the futures up and over resistance in the night.  That may be needed to clear this very stiff resistance in this area.  If they don't gap it up enough in the morning to get above the recent range it might not keep going.  If the bears unexpectedly show up tomorrow and we get a lower close we could be kicking off a pullback.  The real key on he downside is likely still the 200 DMA (2065)

Bob

Daily update 11/27 Tightening credit?

Oh. Hmm.  Sorry.  It think I fell asleep.

It appears that 2089 has a very strong magnet.  That was an entire week of nothing.

This morning the futures closed the 10 AM bar below the 20 SMA, but the bulls came to the rescue.  However, all they could do was get them back up to the bottom end of the resistance zone.  Will the resistance zone or the 20 SMA fall first?

This chart shows the potential for trouble.

Source

There was a little bit of tightening after the mini crash in 2011.  However, that was short lived.  With the FED threatening to raise rates this time instead of the operation twist they did in 2011 things might be different this time.  If banks tighten long enough there will be a recession.  This round of tightening is likely happening because of the stress in the junk bond market.  It looks like that market is likely to get worse instead of better in the near term.  Default rates are rising somewhat.  It is nearly impossible for our debt laden economy to expand without an expansion of credit.  This clearly bears watching.

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

Bob

Daily update 11/15

Nothing new.  This is pretty simple.

I think this is the only chart that matters at the moment.  We have a resistance zone above and the 20 SMA below.  Someday the futures will decide to break one of them.  Until then expect slop and chop.

Have a happy Thanksgiving to those in the states.  With all the bad things going on in the world today it might be a good time to count your own personal blessings.  There must be some good things.  Happy Thursday to those in the rest of the world.  There is no reason you can't take a minute to count your blessings also. 

Bob

Daily update 11/14 Dollar

Resistance held another day.

SPX tested below the 20 SMA, but rebounded sharply.  After being -64% mid morning breadth rebounded to +58% at the end of the day.  Both new highs and lows dropped to 61 and 67.  The new lows dropped because oil and oil stocks were up on the news of Turkey shooting down a Russian fighter jet.  Energy has contained a lot of the stocks that have been making new lows recently.  Still no resolution on the resistance.

The futures bumped the red resistance line twice this afternoon and sold off.  Resistance was clearly still there today.  Now that the 20 SMA has caught up to price it would be easier for the futures to roll over now.  That means the bulls need to get it going soon or risk making another lower high.

Despite the rebound from the gap down the green count dropped slightly.  Obviously that would not be good for bulls if that happens again tomorrow.  It would not take much to get another negative crossover. 

The days before and after Thanksgiving are traditionally somewhat bullish.  Maybe the bulls will try to take advantage of potential sellers being away to get through resistance.  If that happens we will have to see if SPX is able to stay up there when everybody gets back next week.

The dollar index is now approaching the highs from the spring.  It actually touched that lower red line yesterday.  The prior resistance area should now be support.  This looks like a nice basing structure to me, but there sure are a lot of people expecting this to be a top.  I even saw a research report the other day that shows the dollar usually starts down once rates start to go up.  It would be normal to pause here at resistance or even pullback to test that prior resistance as support.  Before I could think about this as a top I will want to see the index get back below that lower green line.  The rally into this trading range was so strong the index never even pulled back enough to touch its 50 SMA.  I think it is unlikely to rally that strongly then form a top and roll back over.  I expect another leg higher eventually.  That probably won't sit well with stocks.  This is an important level so it might take some time to decide what to do here.

Bob

Daily update 11/23

Resistance still holding.

The last three trading days SPX found its high in the first hour then traded sideways to down the rest of the day.  There is still resistance in this area.  The breadth ended barely positive after being +64% early in the day.  Considerable selling into strength.  New highs were once again below new lows 81 to 117.  It is quite possible the resistance here is very significant.  There was a lot of trading activity here all year before the Aug. break down.

I marked that overnight high I have been talking about with a red line.  As you can see the futures have been unable to end the day above that high.  We are going to break out above it or reverse some day.  Until then expect some slop and chop.  Unlike the rally in Oct. ADX is not rising this time.  One more sign of a lack of vigor in this most recent move up.

The green count ticked up a bit again today, but is still below 50%.  While it is improving it is not giving us a true sign of strength yet.

While SPX has not been able to get above the .786 retrace level it has not rolled over either.  It is in limbo here and could still go either way.  Closing below 2078 would be an early warning of a possible roll over.  The key 200 DMA is at 2065.  Do the bulls have enough juice to break through reistance?

Bob

Daily update 11/20

Not as bullish as it looked.

The gap up found a few buyers until a little after 10 AM.  The sellers came out and while they did not slam the market they were hitting the bids constantly.  While the breadth was +58% the down volume was higher then the up volume.  While new highs increased to 79, new lows were higher at 126.  Today looked like a sneaky distribution day.  SPX got just 1 point above the .786 retrace level when the selling started.  This still has the potential to make a lower high here. 

Last night I mentioned the overnight high was never breached during the trading day yesterday.  Today the futures got up above that high for a while, but at the end of the day they were slightly below it.  Interesting, but inconclusive.  If we end up turning down from here on Monday it will be a lot more interesting. 

The green count got a positive cross today, but is still well below 50.  Contrast that with day 5 off the early Oct. low when the count was 81.  Despite the 3% move up there is very little vigor to the move.

The McClellan oscillator got positive today, but just barely.  On day five off the Oct. low it was a super strong 184 instead of 4.  Quite a difference.  The 10 DMA lines are still negative.

There is clear resistance here.  The breadth was +72% early in the day and the sellers just kept hammering away at it.  While the market closed higher it really did not look like a particularly good day for the bulls.  Maybe it was just option expiration shenanigans.  Internals are not particularly strong and SPX stopped at the .786 retrace level.  This qualifies as a test of the Oct. high whether we get up there or not.  It still looks like this market could tip over pretty easily so I don't know if we will make it or not.  Next week will be interesting one way or the other.

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

Bob

Daily update 11/19 Swap spreads

Anybody awake.

A narrow range doji day.  SPX tested yesterday's high several times today. but the buyers could not overcome the sellers.  Too soon to tell if that is important yet or not.  Breadth was nearly dead even.  New lows still outnumbered new highs 84 to 53.  Was today the pause that refreshes or a short term top?

Overnight the futures got well above yesterday's high.  However, they sold of some before the open.  They never got back anywhere near the overnight high after the market opened.  As I was writing this I realized I need to pay more attention to that condition.  I have seen a number of short term highs and lows made where the futures were higher/lower then SPX ever got during the trading day.  I tend to notice them when SPX tests its highs or lows and the futures still have a ways to go to test their extreme points.  Now that I think about it I have seen enough of those that there may be some clues about future price action.  I need to pay more attention.

 
The bar counts are close together with the red count slightly higher.  Since they are this close together this is a neutral condition.  Another sign the market has worked off the extreme short term over sold condition.  A downside thrust day probably sends us back to test the recent low.

Last night I mentioned SPX was in the .618-.786 retrace zone.  This is the most common place to make a lower high.  The indecision today makes sense.  While we have seen some strength it looks like this market could still roll over pretty easy.  We have seen many strong upside thrusts this year roll right back over.  I would think crossing back below the 200 DMA again would invite considerable selling.  A break out above today's high should target the Oct. high.

Lately I have been reading about strange things happening with swap spreads going negative.   I have never studied the bond market so I have only a rudimentary knowledge and it does not include swap spreads.  However, I can read a chart.  There is some info and this chart in Swap Spreads Just Hit A New Record Negative Low: Goldman's Explanation Why

Clearly things have been different since 2008 then they were before.  I have no idea why that is.  Lately it is clear that swap spreads have been crashing and a couple more of them are now negative.  I don't know what this means or if it is a serious problem.  That article is pretty long and somewhat technical I need to study it a bit.  I only bring this up because I have read a  number of pieces from bond market people that indicate they are worried about it.  Quite frankly some of them seem to be kind of panicky.  The only thing I know for sure is that anything negative in the bond market is abnormal and is usually a warning sign of some kind.  The bond market has a history of being an early warning sign to many crises in the past.  This may be yet another warning of something wrong.

Bob

Daily update 11/18 Thoughts from Gundlach

The pattern of this rally from the early Oct. low continues.  Do you know what it is?  I have commented on it a number of times.  Nearly every up day in this rally hasbeen associated with a central bank action of some kind somewhere in the world.  Today it was the FED meeting minutes that set off a buying frenzy.  It left the pundits on TV baffled as they could not find anything new we did not already know.  It wasn't what was in them, it was the fact they were released.  Simple as that.

We closed the 11/12 big gap down.  That surpassed the upper target I had laid out.  I did not put the lines on the chart, but we closed about the middle of the .618-.786 retrace zone.  If we are going to make a lower high it should stop somewhere in this area.  If it keeps going then we retest the Oct. high.  Certainly possible.  The breadth was a strong 72%.  New highs increased to a still low 47.  New lows dropped a bit to a still elevated 97.  Whether we go higher or not we have completely worked off the extreme short term over sold condition.

The futures made it up to the upper Keltner channel.  We have a confirmed break of the 20 SMA, but not the 50 yet.  We completely retraced the steep decline.  We will have to see if the bulls want to keep on pushing.

The red count has come down considerably as many charts move to neutral.  The straight down move makes it somewhat hard for charts to get green though. 

Now that we have worked off the extreme over sold condition what happens now?  SPX could retest the Oct. high or roll over from a lower high.  Internally the market keeps getting weaker with each sell off.  I doubt we are getting ready for a break out to new highs, but as unpredictable as this market has been this year I guess you never know.  Today turned the short term trends to neutral across the board.  The bulls have tentative control in the short term.  Lets see what they do with it.

Some interesting charts in here Charts Gundlach Thinks Fed Should Worry About  Some of them will look familiar as I have shown them here.  However, I found this one particularly interesting as I had not seen it before.

I have shown data supporting the idea of a global recession.  However, none of that data shows how weak the economy truly is like this one does.  In the last 34 years only 2009 was worse for global GDP.   All the while the liquidity spigots are running around the world.  If you have been reading a long time you have heard me say this many times.  I will say it again.  No amount of new debt will cure the problem of too much debt.  The world is buried under a mountain of debt and the low interest rates and QE programs have only encouraged people to borrow more money.  That in turn slows the global economy down even more.  The real solution is deleveraging.  Unfortunately there is no pretty way to do that.  It is a nasty, but necessary process.  It will happen some day no matter how hard central banks try to prevent it.

Bob

Daily updatre 11/17 Industrial production

The bulls tried to keep things going, but failed in the end.

SPX got two points above the 200 SMA before turning down and closing in the red.  Breadth was -60% which was a bit worse then the move down in SPX.  Today kind of makes yesterday look like it might have been a one day wonder.  If there is downside follow through tomorrow that is probably the case. 

The futures tried to get above the 20 SMA, but failed.  That is an oddly tight range on the close of the last several bars.  That does not instill much confidence in further upside, but they have not rolled over yet either.  At the highs today the futures got into the 11/12 big downside gap.  However, there was nothing but sellers waiting there.  That could be very formidable resistance.

If this bounce is going to continue the bulls need to show up strong in the morning.  Since we have not clearly rolled over yet, that is a possibility.  Further downside tomorrow should indicate a resumption of the down trend.

The latest IP came and it was yet another negative reading.

Still no sign of a pickup in activity.  However, it is not falling very fast and is still above where it was earlier in the year.  Lets take a look at the YOY change.

IP is now barely positive YOY.  It is the lowest reading in this recovery.  Because of the surge in the data last Nov. and Dec. if we do not get a really big surge next month it will be a negative reading.  That would not necessarily mean we are in a recession, but in general that is not a good thing to happen.  As you can see from the chart above more often then not a negative reading is associated with a recession.

Bob

Daily update 11/16

Friday I wrote "We have an extreme short term over sold condition at a potential minor support level.  That could equal a bounce/consolidation early next week."  Some people seemed to be surprised the market was up after the terror in Paris.  If we had not just sold off hard the results might have been different.  I don't know.  The market was primed for a bounce and the bulls delivered.

SPX was so over sold that even with a 1.5% bounce it is still be its 6 SMA.  The breadth came in at +69% about in line with the move up.  New highs were a paltry 15 though.  New lows were down considerably, but were still high at 129. 

The futures got a non blue bar this morning and up and away it went in the afternoon.  The 20 SMA is up about another 10 points.  The 50 SMA is another 24 points up.  I think it might be tough to get much above the 50.  The 20 may stop it, but we were very over sold so we could get through there.

Despite the size of the up day the green count did not make much progress.  That certainly leaves plenty of room for the bounce/consolidation to continue. 

How long this bounce lasts is a difficult question.  SPX might find resistance at the 200 SMA.  There is an open gap from the 11/12 big gap down.  To close that gap SPX would need to get up to the 2075 area which is above the 200.  The 20 SMA is inside the gap at 2072.  This market has been so choppy all year with a lot of about faces.  It has been tough to analyze.  Lets see how far the bulls will take it.

Bob

Daily update 10/13 Retail sales

Another splat.

SPX ended the week right above the Sept. high which could provide some support.  Breadth was -60% which wasn't all that bad considering the magnitude of the move.  New highs dropped down to 24.  New lows shot up to 217.  Retail stocks got really hammered.

The futures smashed through the 100 SMA.  This is what happens when the ADX is high going into a reversal and the market does not retest that high or low.  It reverses with a lot of gusto.  The next support on this chart is the 200 SMA (another 20 points lower).  Normally after a string of blue down bars like this the first non blue bar marks a short term bottom.  Maybe that happens Monday.

The green count is as low as it was back at the Aug. low.  The last time it was this low before that was in 2010.  Even the crash in 2011 did not get the count quite this low.  In other words this is an extreme short term over sold condition. 

People are noticing all the stocks getting clocked.  It looks like the psychology of the market is changing to me.  The fundamentals have turned negative and people are taking notice.  I heard a die hard bull say he was having trouble finding reasons why the market might go up.  I heard talk on CNBC of a huge drop in truck and railcar orders in Oct.  The kind of drop only previously seen in a recession.  There seem to be things happening that historically have been associated only with a recession.  All this is happening while the genius economists at the FED are telling us the economy is doing moderately well.  The data is clear that is not true.  Are they knowingly lying to us or just plain stupid?

We have an extreme short term over sold condition at a potential minor support level.  That could equal a bounce/consolidation early next week.  It seems unlikely we make a lasting bottom here though.   If the market does not stop the bleeding in this area it could start to get really violent again.

Here is a look at the latest retail sales.  This certainly helps explain the carnage in retails stocks.

Source

This is a long period of negative YOY sales.  I don't see anything here that will help alleviate the increases we have seen in the inventory to sales ratios.  You have to think more production cuts could be coming.

Food for thought articles.
Buy Low And Sell High: Investing Strategy Thoughts
Moody’s Warns about Credit Crunch, Unnerves with Parallels to 2008!
 
There are changes to the R2000 trend status tonight.

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

Daily update 11/12

Splat.

I saw this article today S&P 500 Above 200 Day Moving Average: A Bullish Sign?  The idea was to look over the last 30 years to find instances when SPX dropped 7-19% below the 200 DMA then moved right back above it for 12 days as we have just seen.  The author notes 1990, 1998, 2010, and 2011.  In each case SPX kept moving higher in the months ahead.  I hope he did not spend too much time on that research because today blew the pattern up.  In none of those instances did SPX close back below the 200 for many weeks at least.  In other words it is different this time.

We gapped down through the 200 SMA at the open.  Sellers were not anxious to sell hoping dip buyers would show up.  While there were a couple of periods of modest buying it didn't amount to much.  I guess by afternoon people got tired of waiting and unloaded.  The breadth was -80%.  New highs dropped way down to 23 while new lows increased again to 184. 

The futures confirmed the break of the 50 SMA this morning.  They are in the middle of nowhere here.  The next support comes in at the 100 SMA another 15 points lower.  The -DI line crossed above 35 once again like it has done so many times this year.  Just a reminder that was a rare occurrence between the 2009 low and 2014.  I believe it to be a sign of serious distribution.  I guess we will see how it all plays out.

The red count is getting into oversold territory.  However, it can get more oversold like it did back in Aug.  We are not over sold by any long term measure.  That rally relieved all the negative sentiment and severe over sold condition.  However, it was not as strong as the 2010, and 2011 initial rallies.

Here is the percent of the NYSE composite index stocks with their 13 EMA above the 34.  On the daily chart we peaked out at 68.  In the rallies off the July 2010 and Oct. 2011 lows this indicator got up to 79 and 81 respectively.  Those rallies were followed by pullbacks that made a higher low in Aug. 2010 and Nov. 2011.  I have several measures of strength and they all say the same thing.  This rally was not all that strong.  While it is always possible we make a higher low and are off to the races I don't see anything technically that gives us particularly good odds that will be the outcome.  In the few instances we have where the VIX dropped back below 20 before SPX got above its 200 we ended up going lower.  As a refresher I wrote about it in Daily update 10/19 IP and ECRI coincident index

"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?"
 
So the VIX indicates new lows are probable and the technical strength measures did not give us good odds of a higher low.  Taken together we should not be surprised if we end up breaking the Aug. low down the road.

Today clearly turned down the short term trends of all the indexes.  The internals were already negative well ahead of price.  With the close back below the 200 many people now have to really think about whether to hold or fold here.  In my mind the negative fundamentals clearly outweigh the positives.  I guess we will find out what others think in the days ahead.


Bob

Daily update 11/11

Thanks to all that have served and their families.  Your sacrifice to protect our freedom and way of life is very much appreciated.

The bulls tried today, but failed.

The market gapped up over yesterday's high and proceeded to sell off immediately.  After about 90 minutes of selling the bulls rallied SPX above yesterday's high once again.  The result was the same.  Nothing but sellers up there.  The buying helped the new high count rise to 63.  However, new lows were the highest since 10/2 at 115.  The sellers are getting more aggressive again.

While the futures tried hard to hold the 50 SMA they closed below it today.  We do not have a confirmed break yet, but that could always happen overnight.  The overnight bounce tested the underside of the 20 SMA and turned back.  That adds at least some confirmation of the down move.

The red count popped over 50 today.  The bears are increasing their grip.

It still looks like SPX wants to test that 200 DMA.  That is a chip shot from here.  Probably tomorrow if we have a down day which seems likely. 

Bob

Daily update 10/10 Inventories

Pause day.

Not the strongest of a bounces after four down days in a row.  Breadth was slightly positive.  Both new highs and new lows increased slightly to 32 and 93.  Not much enthusiasm by either the bulls or the bears today.

The 50 SMA held as support today.  There is a pretty big air pocket below that on this chart.

Despite the up day in SPX the red count increased and the green count fell.  The day was slightly weaker then it first appeared.

This close to the 200 DMA I would think it would act as a magnet.  I would be suspicious of any bounce from here.

Here is a look at the latest wholesale inventories.

This ratio continues to rise.  We have already seen the ISM number drop down to 50.  The rising inventories could cut production even more.  At the very least it is unlikely to turn up significantly yet.

This next chart answered a question I was wondering about the other day.

Source

I saw this Ford commercial talking about friends and family pricing for everybody.  All I have heard about lately is how good car sales are.  That had me wondering if things were so good why was Ford doing a major discount program.  Apparently they are producing more then they are selling and the inventory ratio rose to the highest it has been since the great recession.  It seems likely auto production cuts are coming and soon.  That will put pressure on the Chicago ISM number which was the only regional survey that was strong this month.  Those cuts if they happen will definitely send the national ISM  number into contraction.  So far everything still seems to point to weakness in manufacturing.

This is a pretty good article sent in by a reader.  Technically Speaking: Short-Term Bull Or Bearish Top

The short term trend in COMPX went neutral today.

Bob

Daily update 11/9 Global economy

The market delivered the expected thrust day. 

SPX was down enough to change the color of the price bar to red.  However, it is still above a sharply rising 20 SMA.  Breadth was -78% so the selling was broad based.  New highs dropped all the way down to 28.  New highs increased somewhat to 84.  The 20 SMA and the 200 SMA have come together around 2063.  That is likely to be a support area. 

The futures got a confirmed break of the 18 SMA today for the first time since this rally began in early Oct.  That gives the bears the edge for the moment.

The green/red bar count chart got a negative crossover.  Remember the breadth indicators got a negative cross on Friday.  Market internals are in agreement for the bears now.

This is a bit of an interesting situation.  Market internals are negative.  The longer term MAs (50,100, and 200) are all negatively positioned.  However, the 20 SMA is above the 50 and SPX is still above the 200.  While the negatives would seem to outweigh the positives in the long run, over the next several days the bulls might put up a fight.  It seems logical to have a battle around that key 200. 
Unless the dollar fails its break out I expect the bears will win in the end.  My perception of the key fundamentals are negative.  Revenue is contracting and the global economy is slowing.  We are on recession watch here in the U.S.  If that is not bad enough the FED may actually raise rates.  It seems like a difficult setup for knowledgeable investors to put money to work.  It makes much more sense to me to raise cash levels.

Here is the latest global recession probabilities chart.

Source
The chart says above 70 and there is an 86% chance of a global recession.  The latest reading is 87.5 and it has even been over 90.  Looking at the chart there is no instance of readings this high that did not correspond with a global recession.  The odds might be higher then 86%.  The trade data from China  backs that up as well.

Source

Both imports and exports have been negative for quite a few months.  That is similar to the trade data I previously showed from South Korea and the U.S.  Global manufacturing is clearly faltering and recessions begin with manufacturing.  It is very hard to argue we are not in a global recession.

SPX's short term trend went neutral today.  The COMPX is still up, but barely.

Bob