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Friday, April 29, 2016

Daily update 4/29 The End of Ricardian Growth?

 A little downside follow through.

SPX confirmed a break of the 20 SMA.  Volume increased a good bit.  The breadth ended at -55% which indicates most of the damage was in big cap stocks again.  New highs dropped a bit to 101.  There was a pretty good rally off the lows.  I heard a lot of talk on TV about buying today because over the weekend Warren Buffet's annual shareholder meeting is being webcast for the first time.  The speculation was that he would be spewing forth all kinds of positive things that would cause the market to rally on Monday.  That may have had something to do with the late day bounce.  The question as always is will something heard on TV actually work.  In this case it might since Monday is the first trading day of the month and that has an upside bias.  Of course overnight news from overseas might ruin things for the bulls.

The futures broke the bottom of the consolidation, but got saved by the 100 SMA.  That is a good place to bounce from and we have blue bars so price is a bit extended short term.

The red count crossed above the green today, but remains below 50.  The bears are trying to get a grip.  We need to look at the weekly version.

The weekly green count took a big hit and is below 50.  That was a good indication last fall that the rally had peaked.  I think it is likely the case this time as well. 

The short term bull pressure is just fractionally positive.  Another sign the bears are trying to get a grip.

Today turned the short term trend of SPX down and R2000 to neutral.  I have noticed it has become common place for the last day of the month to be down.  That is often reversed on the first trading of the next month.  Now that the short term trend has turned down the market has more work to do to go up.  We could have a bounce on Monday without ending the downtrend.  We do not have any kind of oversold condition to spark buying.  The bulls need SPX to close above 2075 and stay there.  The bears are starting to get a grip, but it is quite feeble. 

It appears to me there is an underlying bid to this market much like we see in a bull market.  I have previously noted the strength of this rally.  It is clear there are quite a few believers in this market going higher.  Just because there are believers does not mean it will happen.  There was an underlying bid in the bear market rally in early 2002.  That rally failed spectacularly.  Because people have freshly piled into this market a failed rally here will cause a cascade down upon breaking the Feb. low.  No doubt about.  The fundamentals are a slowing economy and declining profits.  It is easy for people to buy in and hold on while the market is rising.  It will be another thing entirely to see those positions go underwater in the current fundamental environment. 

If the recent peak turns out to be the high for this rally it would be a second lower high.  Investors will be mulling that over.  The leading economic indicators have turned up sharply.  I am positive that is because of the massive rally in stocks and commodities.  Was the big rally because the economy is about to pickup?  I am not seeing any sign of that.  However, I am seeing some signs the auto sector may put downward pressure on the economy.  That could end up putting us in recession because the economy is already very weak.  If that happens this rally will go down in history as one of the biggest bull traps ever.  I think that will be the case despite the technical strength.  I am closely monitoring for signs I am wrong.  I am just not seeing any yet.

This is a very interesting article with lots of supporting data.  Quarterly Strategy Update: The End of Ricardian Growth?  It is well worth the time.

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


Thursday, April 28, 2016

Daily update 4/28

Fire!  Apparently that is what Carl Icahn yelled in the crowded hedge fund theater of Apple.  You might recall a few years back he was tweeting about all the APPL stock he was buying.  He unloaded all of it for about a $2 billion profit.

Europe and Japan were down because the BOJ decided not to do any more stupid stuff at their latest meeting.  That sent the futures down pre-market.  The dip buyers rushed in to take advantage.  However, SPX ran into trouble when it approached 2100.  It actually tried twice and was turned back.
There was a bit of a run for the exits after Icahn's comments on CNBC.  Volume picked up a bit today.  Breadth was -65%.  New highs were 121.  I peeked at the new high list a bit last night and noticed a lot of closed end funds.  There was also some mining and energy stocks that had been beat down that were at 52 week highs.  There weren't many stocks that were at all time highs.  SPX closed above the key 2075 level.  Will it bounce or break?

The futures are at the bottom of the recent range.  The 50 SMA is in this area.  They still have not broken down.  The bulls need to show up tomorrow to keep it that way.

The green count dropped considerably, but not enough to get below the red count.  This is neutral now. 

The COMPX closed below its 200 DMA.  Today turned the short term trend in SPX back to neutral.  A lower close tomorrow would turn the trend down.  The bulls had a setup they could work with, but fumbled the ball.  SPX got positive during the day so the overnight news can't totally be blamed.  It clearly failed at 2100 before Icahn brought out the sellers.  The bulls need to prove they can overcome 2100 before we can talk about new highs.  If there is downside follow through tomorrow the 50 DMA around 2030 seems like a likely target.  The COMPX below its 200 DMA really makes the bulls job quite a bit harder.


Wednesday, April 27, 2016

Daily update 4/27 Factory orders

The FED did not rock the boat.

While SPX was up slightly the COMPX was down .5% on an Apple earnings miss.  I think that put a bit of a damper on big cap buying.  The odd thing to me was the strength in the SOX.  PC shipments were not good for the quarter and now we find out neither were IPhones.  That seems like a poor demand from an awful lot of chips.  Beats me.  The breadth was strong once again at +66%.  New highs picked up dramatically to 120.  That is interesting.  I am wondering if there aren't a lot of gold/silver miners in the new high list.  GDX made a new high recently so that is a possibility. 

The futures pushed up enough to give us a green price bar at the close.  They look like they want to go up again.  If so there should be upside out of the gate in the morning.

The green count is hanging above 50.  Plenty of room on the upside before becoming overbought.

This is an odd technical setup.  IWM is at rally highs while COMPX is in a short term downtrend.  SPX is stuck in the middle.  Market internals show the bulls are still in control and SPX looks like it wants to head up again.  Month end mark up time the next couple of days.  A test of the rally high in SPX seems likely.  Whether the bulls will push much higher then that might depend on COMPX turning around.

Here is look at the consumer durable goods.

The trend of YOY negative readings continues.  Still no real sign of improvement.  I have shown the auto inventory build a number of times over the last several months and have been expecting production cut.  This report showed a 3% drop for motor vehicle orders.  That will continue to hurt the industrial production data.  If there is enough of a slowdown then the employment data could be affected.  I don't think I have ever seen the broad economy pick up while auto manufacturing was slowing in my entire life.  It would not be easy to do.  With the inventory build as high as it is I think there will be several months of reduced auto production.  Whether that ends up putting the U.S. into a recession remains to be seen, but as weak as the economy is it is possible.


Tuesday, April 26, 2016

Daily updatre 4/25

Another odd day.

SPX closed up slightly.  The odd thing was the breadth at +74%.  Money was clearly flowing out of big cap stocks down to small caps.  IWM was up nearly 1%.  New highs recovered somewhat to 74, but still rather low.  Since SPX hit 2100 the big cap stocks have been out of favor.  That could make it pretty hard to get SPX to new highs.  That money is flowing down to smaller caps likely because IWM is still well off its old high.  It certainly is not because of valuation.  As discussed many times IWM and IBB are bubble indexes.  I believe there is hope that if the market keeps going up the small caps will make up more ground on the way to new highs.  Will SPX actually be able to make new highs though?

The futures gapped up like usual on pre FED days.  The 10 AM bar closed above the 20 SMA, but the sellers went to work and sent the futures scurrying back down below it.  They are down slightly after hours.  Once again we are oscillating around the 20 SMA like we did earlier this month.  That pattern got resolved on the upside.  Can the bulls pull it off again?

The usual pre FED day bullishness was present just not in the big cap stocks.  The COMPX actually ended up slightly negative.  People are still buying, but they are dabbling in the small caps.  In the end everything will go where SPX goes.  If SPX starts down in earnest the buying in small caps will stop.

Tomorrow is FED day and who knows what they will say.  They are not expected to do anything, but that does not mean the market won't react.  After tomorrow people can get back to worrying about earnings and the sell in May thing.

SPX is on the verge of going neutral tonight.  The COMPX turned its short term trend down today.  It turned its trend neutral Friday and I missed it.  I must have been in too much of a hurry to get on with the weekend.  IWM is still up and made a new rally high close today.  Hopefully we will know more after the FED meeting tomorrow.


Monday, April 25, 2016

Daily update 4/25

It looked like nobody really wanted to do anything today.

I wonder if investors are waiting to get a clearer picture on the earnings.  The breadth was -65%.  Oddly, new highs dropped all the way down to 35.  You would have thought we were down 2% or something with a number that low.  That shows a lack of confidence on further upside by the institutions.  SPX closed right around the downtrend line. 

The futures have been oscillating around the 20 SMA for the last couple of days.  They ended today below it, but still have not confirmed a break to the downside.

The green count slipped under 50 again.  The red count is creeping up so we need to keep an eye on that. 

The bull pressure chart shows upside pressure waning in the short term, but still positively crossed.  The green line in the long term indicator has eclipsed the last red line peak.  I can't be sure what this means because I do not have an historical pattern that looks like this.  It reminds me of the old saying every time you find the key to the market they change the lock.  The poor economic data and high risk of recession give this situation pretty high odds this is a bull trap.  It may go down in history as one of the biggest bull traps ever.  I am monitoring the data closely though in case it decides to turn up.  Until that happens I don't see how we can really give an all clear to stocks.

This is the tricky point.  We still have more positives then negatives in the short term, but one day could change that.  The next FED meeting is Wed.  It has been customary to rally the day before the last few years.  An up day tomorrow would not be a surprise.  The question is how much buying interest there could be with such a small pullback.  The big drop in news highs really signals a significant drop in enthusiasm.  I am not sure there is anything going on that will rekindle that at the moment.  While earnings are beating much lowered expectations they still are not good.  I have not heard much if any good comments about the rest of the year either.  That would be more troubling to bulls then the current earnings reports.  I would guess the odds are pretty good we don't do much until after the FED meeting.  If they hint at a hike in June or take June off the table for a hike we could see some fireworks. 


Friday, April 22, 2016

Daily update 4/22 The media

I cringe whenever I hear or see the words the U.S.is nowhere near a recession.  I have been doing a lot of cringing lately.  What I am learning is that a lot of Wall Street professionals have absolutely no clue how to read the economy or they are simply liars.  If the data in March gets revised downward or April gets worse we may already be in a recession.  I think the auto manufacturers are starting to cut back on production.  As weak as the economy is that by itself might put us into a recession.  People are way too comfortable looking at stocks and commodities and saying everything is just fine.  It isn't.  Maybe it gets fine before the year is out, but it isn't fine at the moment.

SPX tested below the trend line and bounced back above it.  Is that a successful test of the trend line?  It was a very odd day.  Despite some horrible earnings dragging down some high profile big cap stocks the market had strong breadth all day.  It ended at +67%.  However, new highs dropped again and came in at 73.  Awful. 

The futures did some testing below the 20 SMA, but at the end of the day they were above it.  That would seem to be a positive.

The green count improved enough to get back above 50.  The bulls are still in control.

Today indicates that for the moment earnings do not matter.  The broad based buying today seemed to have no fundamental reason.  Over the years I have seen a few times when it appears the market has an agenda and it won't stop until it gets there.  I am starting to think this market has an agenda to get the Dow and possibly SPX to a new high.  It could be the same group of people that orchestrated the buy pattern at the 100 SMA in previous years has decided to pump the indexes to new highs.  I could be wrong, but down moves just do not seem to have any real selling pressure behind them so far.  I thought maybe 2100 would provide some impetus for taking profits, but that does not seem to be the case.  This may be Wall Street's attempt to suck in the very last bunch of retail investors.  If there is a gentlemen's agreement not to sell beforehand we should get there.  That could easily happen next week since it is not far to go.  Then the market will have to deal with the straight shot up and the sell in May thing.  I think it will be easier for SPX to get to a new high then it will be to stay there. 

There are at least two times in history that the stock market peaked the same month or the next month after a recession started.  A new high does not mean a recession has been averted.  It may just be the last gasp.  On Monday the market should bounce from the test of the downtrend line or fall back down through it.  That should setup a test of the ATH or the 20 SMA. 

The way the media reports things these days really, really bugs me.  Growing up the mantra used to be "check the facts, check the facts, and check the facts again".  Today I don't think they check the facts the first time.  Apparently the media is getting worse world wide.  Report: Media Freedom Declined

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


Thursday, April 21, 2016

Daily update 4/21 What Killed the Middle Class?

A little profit taking.

People were hitting the bids all day as the market slid slowly lower.  SPX hit the upper side of the downtrend line.  Now the all important question.  Will that become support or give way?  The breadth was -60% so the selling was fairly broad based.  New highs dropped way down to 84.  One day off a rally high that is pretty poor. 

The futures ended the day fractionally below the 20 SMA.  Will they break it this time?  While they cleared the top of the resistance zone they failed to stay there.  A break out of the bottom could usher in some more selling pressure.

The green count dropped under 50 again.  The red count moved up sharply.  Another down day is likely to see a negative crossover.

My best guess is that yesterday was the end of this rally.  I expect the next bounce will be to a lower high.  I think this is the biggest bull trap rally I have ever seen.  Earnings so far are on track for about a 7% drop.  That may change some, but they will still be bad.  The estimates for next quarter are around  -2%.  People have been buying stocks on the theory that Q2 will be the trough in earnings.  Current estimates are for Q3 to be positive.  The trouble is that by the time we get to Q2 earnings season estimates could be much lower.   That is what happened in Q1.  They kept on dropping as the quarter progressed.  We could even be in recession by the 2nd half of the year.  Some year the sell in May thing is actually better done in April.  I just have this nagging feeling that is the case this year. 

The bears need to see downside follow through tomorrow.  If the bulls show up tomorrow that should indicate a successful test of the downtrend line.  That could set up a test of the ATH.  That seems like the lower odds scenario.  I think 2100 is just too much resistance.

This a good article with lots of charts.   What Killed the Middle Class?


Wednesday, April 20, 2016

Daily update 4/20 Jim Grant: "Make America Solvent Again"

Did the bulls run out of steam today?

SPX stopped a few points short of the Nov. high.  Breadth was +53%.  New highs dropped way down to 132.  That is a significant loss of momentum.  Volume increased again.  Back to back doji bars (looking at SPY) on increasing volume is suspicious.  There were sellers active today once again. 

The futures show price has stalled out.

The green count slipped a bit today.  Another sign of a loss of momentum.

From about 11:30 the market went into a slow creep up pattern for several hours.  Upside was tough to come by as sellers were hitting the bids.  I have noticed that type of intraday pattern at short term turning points before.  In fact the Feb. low was made that way.  The market went into a slow creep down pattern before reversing in the afternoon.  SPX has never been able to stay above 2100.  This could end up being another failure.  This might be the point people start taking profits. 

April historically is one of the strongest months for the market.  That is followed by the sell in May thing though.  The last three years did not see significant sell offs from a May high.  The only big pullbacks came late summer last year and early fall in 2014.  It seems like it is probably time for a bigger sell off from an April/May high. 

This is another interesting read.  Jim Grant: "Make America Solvent Again" 


Tuesday, April 19, 2016

Daily update 4/19 Growth Myth

A mixed day, but a little more up in SPX.

SPX stuck its head above 2100 and held it at the close, but just barely.  Technology is lagging behind as the COMPX was red.  The breadth was strong again at +66%.  New highs bumped up to 195, almost getting back to 200.  Volume increased considerably today.  On a mixed day that indicates we had some sellers active.  I think we have at least minor resistance at 2100.  It remains to be seen how significant it is.

The green count reached overbought today.  That could slow upside progress.

The bull pressure chart shows the long term indicator getting extremely strong for a bear market.  This is actually higher then it got in either of the last two bear markets.  Investors are clearly piling in.  Time will tell if they are smart or not.  If this indicator surpasses the negative peak we saw back in Jan. it would be really hard to argue we are still in a bear market.  If this rally fails this is just adding fuel for bears.  If we break that Feb. low there will be quite a drop.

SPX has poked through the downtrend line, but it is too early to say if it is really broken.  With the market short term overbought it may have difficulty staying there.

After the close Intel said they are laying off 12000 people.  The semiconductor sector has already been lagging recently.  Another sign of economic weakness.  I have never seen such complacency about the economy in the face of such weakness.  All I see and hear is that there is virtually no chance of a recession anytime soon.  A recession in the next few months is certainly possible.  That would be like a black swan event based on almost nobody seeing it coming.  Either I am crazy or the market is.  In time we will find out which it is.  We need a profit taking phase to find out if there is really any substance to this rally.  Will investors hold em or fold em?

This is an interesting read.  The Great American Economic Growth Myth

This chart is self explanatory.

That is a large part of the reason the economy sucks.


Monday, April 18, 2016

Daily update 4/18 Hoisington Quarterly Review and Outlook – 1Q2016


SPX poked through the downtrend line.  Another day of light volume.  Breadth was once again strong at +69%.  New highs increased to 148 which is still below the +200 level we had a few weeks ago.  This was the upper target I had for this rally.  I guess we will see if it stops around here.

Oil and S&P futures were down in the night when there was no agreement at Doha (how could anybody see that coming).  I heard lots of calls for oil to sell off if there was no agreement.  However, the market had other intentions.  That seemed to confuse a lot of people today.  One factor might have been a strike in Kuwait that took production offline.  With oil rallying despite what seemed to be bad fundamental news stock bulls were emboldened to do some buying of their own.  Notice the futures held the 20 SMA overnight and launched off that this morning. 

The green count is approaching overbought. 

I have seen a lot of comments that the NYSE advance/decline line made a new high indicating the bull is back on.  Here is a look at the common stock only NYSE a/d line.

I believe this is the one that counts.  It still has quite a ways to go.  In fact it is so far away that SPX would most likely make a new high before it would. 

Wall Street is looking in every nook and cranny to find reasons why you should be buying stocks.  The truth is that earnings are contracting and the economy is sucking wind and may be headed for a recession in the near future.  I don't believe this rally is predicting good times are just ahead.  Now that SPX touched the downtrend line it may be tougher to gain altitude.  There has been no selling pressure on this rally at all.  It is completely untested.  Longer term investors that bought in expecting a break out on the upside have not had any stress.  I think the odds are extremely low the market just keeps going up from here.  It is when the market gets going a little on the downside that we will find out whether those bulls decide to hold or fold.  That is when the fundamental data will matter.

The short term trend turned back up across the board.  I have no idea if there is more upside to come or not.  Now that the oil shorts were flushed traders may have a change of heart in the next day or two.  Especially if the strike gets resolved soon.  We will see if the bulls want to keep on pushing it.

This is an interesting read.  Hoisington Quarterly Review and Outlook – 1Q2016


Friday, April 15, 2016

Daily update 4/15 Industrial production and ECRI USCIg

Everybody must have been off doing taxes or something.

This is David Elliott's Shanghai duo reversal pattern of a doji bar followed by a hanging man candle.  That would probably be a fitting end to this rally.  If Monday closes below today's low it would confirm the pattern and reversal.  Given the technical divergences I have been showing it could very well happen.  Breadth was slightly positive, but new highs dropped again to 88.  It is not good to see a drop like that and a significant divergence from a couple of weeks ago when we saw over 200.  Since we are right here at the downtrend line we have to take this seriously. 

The green count improved a bit today, but is still negatively divergent.   This is still in a good position for a top.

Both the MCO and the the 10 DMA lines are barely positive.  It won't take much selling to get negative crosses again.

So here we sit just a bit below obvious key resistance at the downtrend line with a reversal pattern.  Lots of technical divergences on top of it.  Call me crazy, but this looks like a pretty good short setup if you are into that kind of thing.  Bears just need to see downside follow through and a close on SPX back below 2075. In Is both Dec. and Jan. down important? I noted that this usually happens in a bear market within a secular bear market.  This is the second year in a row it happened.  That has never happened outside of a prolonged bear market.  Every time it happened stocks went below the first quarter low later in the year.  The VIX dropping below 20 before SPX crossed the 200 DMA is a signal that we should see new lows before the current bear market is over.  The evidence says the odds are high that we will eventually make new lows for the year.  If we turn down here we could be starting on that move.  Next week will be important.

In Daily update 4/8 Wholesale sales I wrote

"Inventories may finally be starting to draw down.  Businesses just kept on ordering despite the buildup for well more then a year.  This will have a negative impact on GDP.  Since sales have not picked up it means businesses are cutting back on orders.  That will negatively impact production which will further hurt the economy.  While so many are saying no chance of recession it looks to me like this is really the time we need to worry.  If sales do not pick up this big of an inventory build could possibly put us into a recession while it gets worked off.  Normally a build like this happens after the recession starts.  I am starting to think it is the build in the inventory that has kept us out of recession so far.  We will find out in the months ahead as it looks like the draw down has probably started."

The latest IP came in with a big drop.

In every recession there is a point where the IP starts dropping precipitously.  It is starting to get that look now.

The YOY look at IP shows it has never been this negative for this long without a recession.

The U.S. coincident index growth rate dropped down to 1.6 this month from 2.1.  Dropping under 2 is a red flag.  This index often gets around 1.5 in the first month of a recession.  It is close enough to be in the danger zone.

Due to data revisions the minimum lag time for detecting a recession would be 3 months.  The data this month has the "look" that a recession may be imminent.  However, next month the data could be revised higher and lessen the risk.  It could also be revised lower and make the odds of an imminent recession even higher.  The risk of recession is considerably higher then in 2011 or 2012.  As you can see in the chart above IP never really even remotely appeared to show a problem in those years.  The IP is a really good data item to look at for judging the direction of the economy.  If it is rising the economy is gaining strength.  If it is falling then the economy is weakening.  The USCIg follows IP directionally as it is a component of it.  Generally the higher the USCIg is the stronger the economy is and the harder it is to go into a recession.  As you can see from the chart above it has been weakening for many months.  I have stated many times in this blog we are on recession watch.  I think I have to upgrade that to a recession warning.  I believe this is about as weak as the economy can get and avoid a recession.  I have noted the build in auto inventories several times.  The latest IP showed a big drop in auto production.  This is likely the end of the inventory build.  I think it is going to be really, really tough for the economy to pick up.  What is going to drive it?  The risk is much higher that more production cuts are coming.  Another key sign would be the national ISM number dropping below 45.  The data reports over the next few months will be very important.

Sorry to drop this on you right before the weekend.  The data is what it is though and now we in a critical time period.

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


Thursday, April 14, 2016

Daily update 4/14 Sales vs employment

Interesting.  A doji day with the high just a couple of points from the downtrend line.

With the divergences we have that could easily end up being the top.  The breadth was -56% so some profit taking started today.  New highs dropped down to 91.  The divergence in new highs is another yellow flag and the drop back under 100 today certainly shows a loss of momentum. 

The green count dropped considerably today and is back under 50.  Another clear sign of waning momentum.  These indicators make a good pattern for a top.

A doji on negative breadth combined with the divergences in the internals is probably a good warning sign of an impending reversal.  I suspect there there will be some profit taking tomorrow in front of this weekend's Doha oil meeting.  The prior rally high was 2075 so that is the first key number on the downside.  A close back below that means yesterday's break out failed.  The short term trends are still sideways.  An up close tomorrow would turn them up.  I think it is more likely we are about to head down and test the 200 SMA, but we will see.  The bulls seems a little tired here.

This is an almost stunning chart.

Apparently the people getting all those shiny new jobs the government keeps telling us about are not spending any money.  One has to wonder how long this divergence can last.  Some might blame the increased cost of health care insurance for at least part of the problem.  I kind of have to wonder a bit how accurate the jobs reporting is.  This just does not look right to me.


Wednesday, April 13, 2016

Daily update 4/13

Better then expected data out of China sparked a buying spree around the world.

SPX closed above local resistance.  Breadth was +71% so it was another strong day.  SPX is getting ever closer to the key downtrend line.  Its about another 8 points higher which should be a chip shot now.  New highs came in at 112 which was slightly down from yesterday and still well below where we were back in March.  That is a bit of a yellow flag for the bulls.  The much bigger likely problem is that we are approaching key resistance while being extremely extended from the 50 SMA.

The futures cleared the upper resistance line today.  We will see if they stay there.

The green count got above 50 today, but is still below overbought levels.  There are obvious divergences here.  Keep that in mind if price reverses in the next few days.  It won't matter if we keep going up.

The bull pressure chart shows obvious divergences especially in the intermediate indicator.  This is similar to what it had at the Feb. low, but not quite as big.  Like the green count this will only matter if price reverses soon.

Everything is positive, but showing some negative divergences.  SPX is clearly very extended from the 50 DMA and trend line resistance looms just overhead.  I don't know what he odds of a reversal soon are, but they are clearly non zero.  The big oil meeting in Doha that seems to have been the major driving force forthis entire rally is Sunday.  I have been wondering if some people might take some money off the table on Friday before the meeting, just in case.  I will be surprised if there is actually an agreement, but I guess stranger things have happened.

I have seen a number of comments on this rally about whether it is largely short covering or not.  From what I can see the Oct. rally was mostly short covering.  I believe that is probably why the retest succeeded.  There were not all that many new longs to sell on the way down.  This rally is completely different.  It is very obvious that there has been a lot of new buying.  That is good if the market keeps going up.  However, if this rally fails all those new longs will feed the bears and we will see  new lows.  I have not seen anything so far to make me think this rally won't fail. 

Retail sales were terrible today and the inventory to sales ratio climbed again.  I still don't see any signs of a serious pick up in the economy yet.  Used car lots are filling up and prices are falling.  New car sales have been declining since Nov. and used car prices falling will not help that.  Auto production has been a big part of the economic strength since the government made the banks lower credit standards for buying a car.  It looks like that stimulus is running out.  A drop in auto production will be clearly visible in the manufacturing data.  The economy is still at high risk of more slow down.


Tuesday, April 12, 2016

Daily update 4/12

Interesting day.

A small gap up this morning brought out the sellers like the last two days.  As SPX was testing the lows from the last two days it rebounded suddenly.  A mysterious rumor from anonymous sources said an oil production freeze agreement might be reached at this weekend's meeting.  That sent oil and stocks higher all day.  Notice the volume increase.  People piled in on the news.  The breadth was +77%.  New highs came in at 125, well below the prior rally high of 222.  In the afternoon SPX got above the highs of the last two days, but failed to stay there.

The futures ended the day back above the 20 SMA, but have not confirmed an upside break.  Will they be able to stay there this time?

The red count fell considerably today, but is still above the green count.  Both are below 50. 

The MCO has reached positive territory.  The 10 DMA lines are still positive.

The short term bull pressure crossed back positive today. 

The slight short term oversold condition of the MCO and the red count has been worked off.  All my market internals but the green count are positive.  In theory that should be enough to indicate the market goes higher.  The odd thing is we had three days in a row of positive breadth (two of those days very strong) and yet SPX did not clear what looks to be only minor resistance.  What is up with that?  We have had invisible hands working in both directions.  It is not clear to me in the price action that the bulls have won.  They need to show up tomorrow and keep pushing higher.  We have cleared the slight oversold condition.  If the bears come back tomorrow they could be more aggressive then they have been the last few days.  Overnight news might be the deciding factor.

The entire premise of this rally from the Feb. low seems to be that the Doha meeting this weekend will lead to an oil production freeze.  That is why the rumor this morning sparked a bunch of buying.  I am pretty suspicious that is not going to happen because there seems to be a serious lack of trust in the players.  No agreement seems very likely to send oil and therefore stocks lower.  It is possible an agreement has already been priced in so there may not be much upside even if it happens.  If all this is not enough we have started earnings season which did not work out very well for AA and JNPR.  The longer term direction will likely be determined by what the companies say about the future more then the price of oil.  We don't have any clarity on either of these issues so it seems unlikely we will be breaking out to the upside of this recent trading range just yet.



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