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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.


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