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