Daily update 12/18 Global liquidity

Thud again. 

SPX made another close below the green support line.  Breadth was -63% which again was a bit light for the magnitude of the move down.  New highs were a paltry 21 while new lows increased some to 229.  That is a lot less new lows then when we were here before.  There were 365 and 625 on 12/10 and 12/14. I believe the less severe breadth and less new lows indicates the selling was more in taking profits on winners rather then selling losers like before.  There is an old saying and I have no idea who said it, but it goes like this "in the end they get them all".  This refers to the early stages of a bear market or severe correction.  I have commented many times on all the stocks that are already down 20% or more from their highs.  That expression refers to situations like this because they always seems to get resolved by selling the few remaining winners.  That is how final highs become final highs.  This is only two days, but if this action persists it would be a very bad sign for bulls. 

The futures came to a stop at their support line.  Once again SPX is below support, but the futures are not.  Last time we bounced.  We were down enough again on a Friday to suggest Monday should see a lower low at least in the morning.  Last Monday we sold off a bit then rallied in the afternoon to begin the pre FED bounce.  Can the bulls pull a rabbit out of the hat again on another Monday? 

The red count is back into oversold territory again with a slight divergence.

The transport are the first index to close below the Aug. low.  Will this make a double bottom or will this turn out to be a major warning sign?

I have no idea what happens next week.  SPX has not clearly broken support yet.  There are some very minor divergences and we have a seasonally strong time period.  Do the bulls show up or will the sellers keep control?  This market has changed directions so many times this year I don't know how you can predict anything. 

I heard a lot of talk about the lower for longer idea being applied to oil and other commodities.  Well duh.  It is amazing to me it has taken this long to figure that out.  In GLD and GDX 4/15 I wrote "If gold has topped and broken down the most logical reason for that would be a deflation event is coming. "  It was a clear sign that a deflation event was coming.  Commodities have crashed and Europe even has negative rates.  I have been waiting for over 2.5 years for everybody else to figure that out.  Better late then never I guess.

I find this chart a bit shocking.

This chart goes back to 2004 and this is the first time global liquidity has gone negative YOY.  I am sure this is related to the drop in the price of oil and other commodities.  Do you see the problem here though?  What happens if we have another crisis like 2008?  At that time countries and central banks all around the world got together to fight the crisis.  My guess is there would be much less cooperation.  That is already showing up in all the currency devaluations going on.  Countries have adopted a me first attitude.  I expect that would only get worse.  Easy to understand.  All that liquidity and fiscal stimulus did not produce a self sustaining recovery.  Why would it work a second time?

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

Bob