Daily update 1/8 Business inventories

More oversold.

Despite the gap up and both China and Europe up sellers came out in force.  Once again it was not panic selling, but consistent hitting the bids.  The TRIN spiked up a bit near the close to 1.94.  Price hit the .786 line which is the last potential support above 1885.  Volume actually declined which is not really good when trying to make a volume climax low.  That suggests any bounce next week will end up retesting today's low.  Breadth was -64%.  That is in the sweet spot for continuation.  Not low enough to suggest exhaustion and not high enough to be climactic.  New highs dropped once again to 19.  New lows increased a bit to 510.  I guess that last failed test of the 200 SMA was one tests too many for the market.

Other then price is extended there is not much more to say about this chart.

Lets take a look at the weekly ADX on SPY.

Many people were comparing the Aug. sell off to 2011.  After the initial spike in the -DI line in 2011 it made a series of lower highs and ADX turned down.  Contrast that to the current look.  The -DI line is spiking up again and that is causing the ADX to turn up once again.  In 2011 the 8 SMA (green line) was rising during the sell off in Nov. that created a higher low.  During the current pullback that MA has clearly turned down.  I believe the odds of a retest of the Aug. low being successful are not particularly high. 

While the market is oversold short term it is in runaway down mode.  Trying to predict where it will stop is a tough task.  Maybe we rally on Monday and maybe we crash more.  Next week is option expiration which is the most statistically bullish week of the month.  A bounce from here would certainly not be surprising.  However, today did not look like the kind of day likely to make a long term bottom.  I suspect any rally will end up retesting today's low. 

This is a well done chart from Inventory Overhang Looms Larger.

Houston we have a problem.  I have commented on this for many months now.  The problem is only getting worse.  That build in inventory added to GDP and made the economy look better then it truly is.  We will pay for that as production cuts come.  It does not look to me like sales are going to pick up even with lower energy prices.  That spells trouble, plain and simple.

Source

Auto inventories have continued to build.  We saw how the rising inventories of the last few months hit the Chicago ISM number and sent it to recession like levels.  I don't think it is going to get back positive as long as inventories continue rise.  If you are looking to buy a car I think you can expect some deals in the months ahead.  However, this is really bad for the overall economy.

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

Bob