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Friday, November 6, 2015

Daily update 11/6 Dollar again

Quite the unusual day.

The stronger then expected employment report sent the futures tumbling, then they bounced back, then they tumbled again only not as much.  After the open the market sold off again, then rallied back.  It traded largely sideways in the afternoon.  Meanwhile the dollar flew up along with the FED funds futures that now indicate the odds of a rate hike in Dec. are around 70%.  This is the first time I have seen them above 40% in all this time.  While most of the major indexes ended positive the breadth was -61%.  A few stocks were holding the indexes up.  New highs dropped way down to 59.  New lows more then doubled to 81.  While on the surface it looked like no big deal, the market was weak under the covers.

Yesterday I mentioned the futures had not closed below the 20 SMA yet which had been the springboard for thrust days.  We got that close this morning.  The next bar rebounded and closed back above the 20.  The stage is set for another thrust day.  Will the bulls make it happen?

Both the MCO and the 10 DMA indicators had negative crossovers today.

While the green count is still higher then the red, it is below 50.  Its ready for another thrust.

Monday is going to be an important day.  If the pattern of this rally repeats it will be a thrust up.  With the breadth indicators already negative a down day will give control back to the bears.  In the last two days the odds of a rate hike in Dec. went from somewhere around 36% to near 70.  I don't think this change is priced in yet.  Until 8:30 this morning there were still a lot of people that did not believe the FED would hike next month.  The thrust days in this rally came on days of bad economic data and/or central bank easing or talk of easing.  My impression has been the entire thesis of this rally was the economy was too weak for the FED to raise.  That thesis was obviously removed today.  I am sure some people were out buying because of the good data thinking better times are ahead.  The financials were up strong based on higher rates.  People only had an hour to think about things this morning.  Now they have the entire weekend.  They may feel more strongly about things on Monday.  We should have a thrust day.  Whether it is up or down is the question.

The strong employment report really set the dollar on fire.

Now that is a break out.  Since it is driven by fundamentals it seems pretty unlikely it will fail.  A retest of the high should be coming.  CEOs across the country are cringing tonight.  The dollar has already been eating their earnings and now it looks like things are just going to get worse.  While this was not particularly negative for SPX today, I have a hard time understanding how it won't be in the future.  Next week will be interesting.  Here are a couple of interesting articles on the dollar.
King Dollar could rally another 15% on breakout, says Joe Friday
Is Pound The Next Shoe To Drop?

In case I have not made it clear this is a serious problem for the global economy.  The U.S. subprime problem was less the $1 trillion and it brought down the world.  The dollar denominated foreign debt is 9 times bigger.  A 10% default rate is nearly a $1 trillion problem.  I have no idea who all is holding this debt.  I do know that the IMF, the BIS and more then a handful of billionaire money managers have all said we could be in for another serious financial crisis.  It is really easy to see how that could happen.  World trade appears to be cratering which explains the action in the transports. They were notably absent from the current rally.  A lot of that money was borrowed by emerging market companies and I suspect some of them were into commodities.  A rising dollar and a slowing economy is going to be like getting hit in the head with a sledge hammer.  When some of these companies start needing more money I suspect it will be very difficult for them to find it.  Defaults are highly likely to increase in the months ahead.

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


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.