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Wednesday, December 16, 2015

Daily update 12/16 Nov. IP

Kind of anti climatic just like the FED wanted.  I don't know if we stay that way the next few days or not.

SPX climbed up to the 20 SMA.  Breadth was a very strong +79%.  New highs increased once again to 45.  New lows remain elevated at 123.  We are almost back up to where we struggled in Nov.  Did the rate hike clear the decks to go higher? 

The futures made it up to the 50 and 100 SMAs.  There is also the upper Keltner channel here.  There could be some resistance in this area.  At any rate the oversold condition has been eliminated. 

The red count dropped considerably.  However, the green count did not overtake it quite yet.  This is essentially neutral now. 

Both breadth indicators are still  negative.  The MCO has gotten up into a neutral condition though.

The dollar index tested the downside after the FED announcement.  It was rebuffed and ended the day pretty strong.  As you can see it has tested the 50 SMA for several days in a row and appears to be ready to head up again.  Longer term I think this is key to what happens to SPX.  The jury is still out as to whether the long consolidation this year is a top or a base to go higher.  However, it has done nothing wrong to my eyes.  I still believe it is a base to go higher.  We will see.

We had a big three day rally, but the bulls have not quite got clear control of the market yet.  There was a rush to front run the FED meeting.  The question is was it for a short term trade or longer term holds.  No way of knowing that.  Since we are no longer oversold the bulls will need desire to continue to push prices higher.  I don't know if they have that desire or not.  There is still a little more room up to the major resistance levels. 

Up until the last three days SPX was unable to put back to back up days together for well over a month.  While the bounce in SPX was sizable the internals do not appear particularly strong.  I don't see any clear sign this rally will do any better then the many other rallies since May that failed to make a new high.  We will just have to see what develops. 

There were changes to the trend table for SPX and COMPX.  R2000 did not quite do enough to change anything.   

The latest IP data came in weaker then expected.  Part of the drop was caused by utilities and the warm weather.

As you can see we are at a new low for the year.  It is also negative YOY for the first time in this recovery.  I suspect the FED has never raised rates in that condition before.

There have been a few times in the past when IP went negative YOY and we did not have a recession.  However, more often then not it has been associated with one.  What will it be this time?  The biggest problem I believe is the inventory situation.  There is clearly a risk of more production cuts.  The pundits claim that manufacturing is a small percent of the economy and not to worry.  The problem is that all recessions take root in manufacturing.  One cannot tell where recessions begin and end in the long term chart of the ISM non-manufacturing index.  However, a look at the IP chart above and it paints a pretty clear picture of when they occur.  The bigger the drop in IP the worse the recession was.  At the moment the economy is still not getting better.


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