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Monday, December 7, 2015

Daily update 12/7 Credit market stress

About face.

Investors displayed a little buyers remorse today.  The breadth was -79% so it was rather broad based selling.  New highs came in at 44 while new lows spiked up to 328.  Weakness in oil sent a lot of energy stocks tumbling down.  A late day bounce kept SPX from looking too bad.  That bounce kept SPX above the 20 SMA.  That is about the only positive I can think of about today.  Friday's big rally was met with broad based selling.  That hardly seems like a good thing for the bulls.

The futures are back below the 20 SMA.  There was no confirmation of Friday's move above that line.  So far there is no confirmation of the break back below either.  Resistance is still holding.

The red count crossed above the green once again.  However, both counts are low so this is really pretty neutral now. 

The bears really had a shot at taking control last week, but the bulls fought back.  The power is up for grabs here.  The R2000 entered a short term down trend today, but the other two indexes are still neutral.  Will the bears come out again tomorrow and take advantage of that?  No crystal ball here.  This market is rather crazy when you sit down and look at the daily chart.  Up and down, up and down.  The market is poised to head lower.  We will just have to see if the bears show up or not.

I read an article today talking about all the attempts SPX is making to go higher.  The main point was that the more times a level is hit the weaker that level is in terms of support or resistance.  While this theory is somewhat true, in practice it is not quite so clear.  There comes a point when failures to get through a level become a self fulfilling prophecy and it becomes even harder.  This last trip up was met with sellers.  It was not a case of price sitting near the highs for periods of time because of a lack of buyers.  Investors started selling into upside gaps right at the open.  I think resistance is strengthening not weakening here.  It seems likely to take a lot of good news to go higher now.  I don't see any of that on the horizon at the moment with revenue and earnings contracting these days.

Here are a couple of interesting articles noting some stress developing in the credit markets.  You might recall that is how things started before the last recession.  People are starting to realize the price of oil might end up staying lower for longer.  You already know I am in that camp.  It looks so similar to the natural gas crash.  Until producers cut back production the oil price is only going to stay low.  The world is swimming in oil at the moment and production is holding firm.  That will certainly add to the stress in junk bonds as there was so much money lent out to drill.

“Distress” in US Corporate Debt Spikes to 2009 Level
As The Credit Cycle 'Turns', Global Defaults Surge To 6-Year Highs


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