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Wednesday, November 4, 2015

Daily update 11/4 The Dollar

Pause day.  I would say the market earned that the last couple of days.

SPX tested yesterday's low and dip buyers showed up.  They successfully defended that low at least for now.  The breadth was -58% about in line with the size of the move down.  New highs dropped a bit to 100.  New lows hung around the same area as they have been lately at 30.  The futures gapped up this morning and the sellers started right away.  We clearly still have resistance here for now.  Volume came in higher then yesterday which is probably not particularly good at this point on the chart.

The futures are still above the 20 SMA, but obviously extended.  Most of the price bars since the last 20 MA bounce are showing upper tails.  I would say that is indicative of the resistance here.

The last two times SPX paused in this rally it did so for two days.  It would not be a surprise to see more selling tomorrow.  If the market wants to maintain the similarity to the 2000 top this might be the end of the rally.  The 20 SMA on the futures is not all that far down at the moment.  We will have to see if that MA gets broken this time if the pullback continues. 

Yellen was in front of Congress today and the dollar very much liked her comments that the Dec. meeting was a live meeting for a rate hike.

The dollar index got up into the key resistance zone today.  It closed above the important FED day high.  Clearing the top line sets up a test of the spring highs.  It may take a bit of time to get through here, but unless the FED does an about face on Dec. I expect it will.  I also expect stocks will not like that.  Below is an interesting look at the SPX/dollar ratio.  It is acting very similar to the last two bear markets.

In our current situation a strong dollar will hurt a lot more then just corporate profits.  Remember we now have somewhere around $9 trillion of dollar denominated foreign debt.  A rising dollar is going to hurt a lot.

With SPX just over 1% from its high there is nearly 30% of the index down 20% or more from 52 week highs.  There are huge divergences in market internals.  Meanwhile the talking heads are busy raising price targets.  I have seen very similar situations twice before.  Both times led to 50% haircuts in the market.  In 2000 I didn't see any trouble economically.  We only had a mild recession in that bear market.  In 2007 there were some storm clouds on the horizon as there was talk of the subprime housing issue.  That turned into the worst recession since the great depression.  In 2015 it feels like we are sitting in the eye of a hurricane.  The global economy has serious problems.  European banks are showing great stress.  I think the hurricane is moving and we won't be in the eye all that much longer.


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