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Friday, January 22, 2016

Daily update 1/22 ECRI coincident index growth rate

The bulls finally got a break with oil rallying.

The world's problems were clearly solved overnight so traders bid futures up.  The breadth was a very strong 88%.   The volume declined from yesterday.  Not particularly good when coming off a deep oversold low.  The futures only closed about 7 points above the open so the majority of the gains were overnight.  The normal target for such a bounce is the 20 SMA which is quite a bit higher, but is falling rapidly.  The caveat is that when price has been outside the Keltner channel for quite some time the channel edge can provide resistance.  Notice price stopped there today.  A close inside the channel would greatly increase odds of reaching the 20 SMA.

The futures got a confirmed break of the 20 SMA this morning.  They are in bounce mode now.  The 20 SMA might provide support should the market pull back a bit on Monday.  If we break that MA real quick then look out below.

The red count dropped precipitously today.  The market has worked off the oversold condition on breadth as well.  That means should the overnight news be very negative this market could roll back over and make new lows.  I expect we will get more bounce, but we don't always get what we expect do we.  Just be aware of the fragile nature of this market.

The futures indicate we have a micro uptrend so the bulls have a tentative grip on the market.  Lets see if they come back out to play next week.  A down day on Monday will not necessarily kill the bounce attempt as long as it is relatively minor.  However, keep in mind that more and more people are figuring out we are in a bear market.  It might not take all that much bad news to bring out the sellers again.

The growth rate of the ECRI coincident index has been falling since Jan. 2015.  It turns out this indicator does a really good job of showing whether the economy is getting stronger or weaker.  Too bad the FED does not use it!   The latest reading (Dec.) came in at 2.0 a drop from 2.4 in Nov.  The key number is 1.5.  This indicator will often hit 1.5 or less in the first month of a recession.  However, it is subject to revision.  That means after a 1.5 reading we need to wait until the next month to see if it stays there.  There clearly is no sign the economy is picking up at this point in time.  It may in fact be getting worse faster.  That probably explains why we are seeing more and more layoff notices this month. 

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


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.