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Thursday, December 17, 2015

Daily update 12/16 Rate hike vs profits

Thud.  I expected some give back today, but this was outright running for the exits.

That was a short trip above the 50 and 200 SMAs.  SPX retraced slightly more then yesterday's gain.  The futures kept on diving after the 4 PM close.  The breadth was only -63% which is a bit light for the magnitude.  That suggests big caps were getting hit the hardest.  You might recall the way this bounce got started was by the big caps.  Well they were bailing out on them today.  The TRIN closed at 3.7.  That is the first high TRIN reading in a long time.  The down volume was 85% of total volume today.  New highs were 44 while new lows increased a bit to 176.  A bloody day.

The futures were well off the overnight high by the open.  They tried twice to get above the 100 SMA, but failed.  I think that inability to go higher is probably what started the selling.  Then it just kept up all day.  The futures did not stay above the 18 SMA long enough to turn it up.  The break of the 18 is unconfirmed, but that might happen in the night.  Needless to say this is not exactly what the bulls wanted to see.

The red count turned up a bit, but is well below oversold levels.  Not very compelling for bulls.

The high TRIN often brings out the bargain hunters the next day.  However, it normally happens when the market is oversold.  A condition we do not have.  Yesterday's rate hike and big rally echoed around the world overnight.  It is quite possible today's rejection might also echo around the world.  If that is the case are the bulls going to step up to the plate and buy?  Unless they show up strong tomorrow the year end rally is certainly in question.  I think the bulls are going to need to pull a rabbit out of their hat now, but they have done that before.  I think tomorrow will be interesting.

The dollar was strong and commodities were weak.  Oil made new lows.  I heard a lot of interesting talk about that today.  It appears it may be dawning on people that oil is in a downtrend.  That statement may sound absurd since price has been dropping for 18 months, but think about it.  All we ever hear about is people trying to pick the bottom in oil and energy stocks.  A lot of people were viewing the down move as temporary.  I have been saying all along oil was not going to bottom until people started cutting production.  Today I feel like that realization is starting to hit people.  If that is the case it will likely cut off the flow of money that has been pouring into cash starved energy companies.  That will start ratcheting up defaults in the months ahead.  Texas is already starting to really feel the affects.  That will only intensify.  Needless to say I think the trouble in the junk bond market is just getting started.

There are several interesting things in this article.  3 Things: Tick Tock, Stocks, Shocker  There are some tables with GDP at first rate hike and the time to recession that are pretty good.    I found this chart very interesting.

This chart really show hows late in the cycle this first hike is.  It looks like other rate hikes came when profits were increasing which is clearly not the case now.  It really is different this time then any time in history that I can find.  Nothing about this looks right to me.  These dovish rate hike people rally crack me up.  Rate hikes are not dovish no matter what is said.  If one considers QE as loosening monetary policy then the FED has been tightening and therefore hawkish since Dec. 2013 when tapering began.  Yes rates are still low, but is the FED tightening policy or not?


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