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Tuesday, January 19, 2016

Daily update 1/19 More on Idustrial Production

Another big gap up, another sell off.

The gap up brought out sellers right away.  The dip buyers showed up a couple of times in the morning, but the sellers were relentless.  In the afternoon SPX broke down and tested the Aug. low again.  There the bulls came to the rescue and mounted enough of a rally to get SPX slightly positive at the close.  Breadth was -65% which is definitely out of line with price.  Money clearly moved into big cap stocks.  New highs were 7 while new lows came in very high at 693.  The more these rallies fade the weaker the dip buyers are likely to become.  At the moment SPX is holding support.

The futures sold off in the overnight session and are now testing today's intraday low.  The sellers show up every time the futures get up to the 20 SMA.  Not good for the bulls until that changes.

The bulls are trying to support SPX 1867.  However, they don't seem to have much enthusiasm so far.  Oil probably needs to stop going down for that to happen.  Of course oil is oversold as well so a bounce is not out of the question.  However, oversold can easily become more oversold.  The bears are in control for now.

I found this interesting chart in An Imminent Likelihood of Recession

Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough.

The manufacturing sector is clearly in recession.  How much longer can the broad economy keep growing?   We are dangerously close to a recession.


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