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Wednesday, March 9, 2016

Daily update 3/9 Wholesale sales and inventory

Draggy day.

The market did indeed rally in front of the ECB meeting tomorrow.  It was a very lethargic day though.  The breadth was +67% indicating a lot of stocks were up a little bit.  New highs increased to 94 which is the highest so far in this rally.  Still nothing to write home about.  New lows came in at 6.  Volume was even lighter then yesterday.  Sellers were mostly on the sidelines today I think.

The lower resistance line held the bulls in check today.  The futures started a bounce off the 20 SMA, but didn't get very far.  If the bulls don't step on the gas tomorrow the market is likely to tip over.

The green count really slipped today.  It is now out of overbought and into a neutral condition.  This is usually the point where we get another thrust day up or the market reverses to the down side.  I guess that would be up to what Draghi does and how the market reacts.  The market has been rallying on any central bank easing action, but the length of time the rallies last has been getting shorter and shorter in recent months.  I don't know if ECB action can propel us through this resistance area or not.  If so the next target up would be the 200 SMA.  It is not out of the question that SPX tags that MA, but that would likely be the final stopping point of this rally.

Today they were celebrating the bull market turning 7.  This really shows how far we have to go sentiment wise.  We are in a bear market and eventually the end of the last bull market will be dated last May.  Therein lies the problem.  Bear markets do  not end until everybody recognizes we are in a bear market and sells all they want to sell.  At this time there is hardly anybody that is saying we are in a bear market.  I have heard a few well we could be in one type comments.  I believe low interest rates have many people thinking nothing bad can happen to stocks.  One look at history would tell them differently.  Markets can and do crash with low rates.  This bear market has a long way to go.

The other interesting comment I heard today was that nobody was talking about recession in the U.S. now.  I said a while back that recession fear has receded, but not the actual threat of a recession.  I also attribute this to low rates.  There is an unfounded thought that the economy will not go into a recession without an inverted yield curve.  Not only have other countries gone into a recession without an inverted curve, but so has U.S.  It can and does happen.  We are in that point in a bear market where the market has sniffed out that there could be a problem, but the majority of people have no clue.  Be aware that the calm that has taken over the market the last few weeks can end at any time.

Here is a look at the latest wholesale sales data.  Its getting worse and worse.

Sales have been falling and falling while inventories have been rising and rising.  The building inventories add to GDP.  That is making things look better then they really are. Somewhere down the road this will cause more production cuts as companies let their inventory contract to match sales.

I still find the auto data interesting.  I keep hearing about how great sales are, but take a look at this chart.

If sales are good and inventories are rising, then by definition production is too high.  There will be a day of reckoning in the auto industry.  The only question is when.

It looks to me like companies are continuing to add to inventories in hopes of higher sales down the road.  This has been going on for quite some time, but the sales are not keeping pace.  At some point something has got to give.  I can find no sign that sales are going to pick up.  How much longer will they keep building inventories?

Thought provoking article.  The new mind control You might want to pass that around to friends and family.  I do not participate in social media in anyway because I value what little privacy I still have.  Google cannot find me and yet I actually exist (or do I).  I think it is downright dangerous that so many people get their daily news through Facebook.  What good can come from a single company determining what news people see.  This actually scares me for the future of the world.


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