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Thursday, December 3, 2015

Daily update 12/3 Factory orders

Big splat.  Draghi disappoints and causes massive short euro carry trade unwind. 

SPX closed back below the 200 SMA.  It is still above the 50 and 100 SMAs.  Volume picked up again today.  Breadth was -79%.  New highs dropped again down to 37.  New lows spiked up to 166.  Amazingly the TRIN ended at .76 despite the very negative breadth reading.  No sign of panic and this likely means today will not be any kind of important low.  I think I read somewhere that the short euro trade might have been the biggest euro short in history. I would expect this to be a temporary decline in the dollar index and rally in the euro, but I have no idea how long it might last.  I don't know if they got the carry trade unwound today or not.  Pretty hard to say.  There is the possibility of a lower double top pattern.  Those can lead to pretty large declines should that play out.

The 10 AM bar confirmed the break of the 20 SMA and it was all downhill from there.  This chart is fully negative now.  The 200 SMA is the next target down.  That is about another 40 points below.

The red count shot up to 60 today.  The bears are clearly in control now. 

Both breadth indicators are now negative.  Thus confirming the other indications the bears are in full control.

With two big back to back down days we could be due for a pause day especially since SPX rallied off its lows a good bit.  The carry trade makes this situation a bit tough.  Did they get everything done today they needed?  Will they be anxious to sell any morning bounce tomorrow?  I have no crystal ball.  We could always have another big down day.  About the only thing I can say at this point is that a break below the 11/16 low (2019) in SPX is likely to test the Aug. and Sept. lows.  On the upside SPX has to get back above the 20 DMA 2076 to get back bullish again.  Lets see what he bears have in store.
The latest factory orders data makes the ninth month in a row of negative YOY readings.

The manufacturing part of the economy continues under extreme stress.  There is no other way to put it.  There is still no sign of a turn up.  With the ISM now under 50 it is imperative that the orders pick up very soon or more production cuts will be coming and with that more layoffs.  Recession risks remain elevated and actually appear to be rising somewhat.  If the national ISM number stays below 50 and declines for three months in a row or gets below 45 recession odds climb dramatically.  Still on recession watch.

I am marking the short term trends as neutral across the board tonight.  I don't like to go from up to down after just two days even if they are big days.  However, I believe the trend really is down.


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