Daily update 12/11 Imports/exports

Splat. In The importance of oil to the U.S. economy  back in Nov. 2014 I wrote.

"The U.S. junk bond market was around $1.3 trillion at the end of 2013.  That makes the current energy part roughly $200 billion in 2014.  What is particularly disturbing is the big surge this year (5% of $1.3 trillion is $65 billion).  That is a lot of fresh money allocated at much higher oil prices.  Have those borrowers even had time to get production going?  Since these were junk bonds the borrowers were clearly of marginal quality.  It seems likely there will be considerable defaults coming."

There have been a few defaults and a lot of the debt is now distressed.  Third Avenue Focused Credit the largest mutual fund to close down since 2008 froze redemptions.  That fund specialized in distressed debt from what I understand.  There is a pretty good chance they had a bunch of those energy junk bonds.  This is likely to have a lasting impact on investor psychology as this event is on our shores.  There will likely be much more to come.  I have reported in this blog a few times comments from bond people saying there was no liquidity.  That lack of liquidity is what caused this fund to close when people started wanting their money back.  There was literally nobody to sell to.  That will scare other investors.  A stampede to the exits is possible.

SPX closed below our first key support line at the Nov. low.  There was extremely broad base selling as breadth came in at -88%.  However, TRIN was only 1.47 so not really a panic selling event.  New highs plunged down to 8 while new lows spiked up to 365.  Over 92% of the volume was on the downside.  While volume was higher then yesterday it was not particularly high like a climax day.

The futures paused at the 200 SMA this morning.  However, every time they tried to bounce sellers stepped in.  The 200 eventually gave way.  The interesting thing here is the futures are above the 11/16 overnight low even though SPX is below that day's low.  There is potential support there I think.

The breadth chart shows the MCO the most oversold since the Aug. crash.  The 10 DMA lines are also showing an oversold condition. 

The red count still is not as high as it has been the last few months.  This is really only a slight oversold condition.  There could be more to go here.

We have blue bars on both the daily SPX chart and the futures charts.  Price is extended to the downside and we have a short term oversold condition with breadth indicators.  Should we bottom here we at least have a reason for dip buyers to show up.  As you know though, oversold can easily become oversolder as it did in Aug.  I heard some discussion on TV about a big down Friday usually means Monday closes lower.  However, I did not get the particulars.  Today put the last six weeks of buyers underwater so that could certainly happen.

Does stocks tanking and the credit market blowing up have any bearing on what the FED does next week?  Interestingly I heard them commenting on TV that the FED was in a black out period before their meeting meaning they would not be able to signal if their intentions had changed.  If they don't raise rates it might scare people more then if they do.  I will go out on a limb here and predict next week will be very volatile. 

Here is a bit of a scary look at the latest import/export data.

It is very rare for imports to go negative YOY and the U.S. not be in a recession.  The exports data seems to be clearly showing the global economy is in recession and may still be getting worse.  The import data includes energy.  While we do not import near as much as we used to, we still import some oil.  I don't know how much of the decline is because of the drop in the price of oil.  This is not a pretty picture.

There were some changes to the trend table tonight.  The market and sector status pages have been updated.  Have a great weekend.

Bob