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Friday, April 8, 2016

Daily update 4/8 Wholesale sales

The bulls strike back.

Oil was up strongly overnight which sent the futures flying up.  However, once the market opened the sellers took over.  However, at the end of the day SPX closed back inside the trading range.  The breadth was +67% which was pretty strong based on the size of the moves in the major indexes.  The bulls were able to hold the market up today, but they were not very ambitious.

The futures popped their head above the 20 SMA this morning and closed the 10 AM bar slightly above it.  However, they spent all afternoon below the line.  The recent consolidation continues.

Market internals continue to be negative, but price is holding.  Usually that ends up with another move up.  That is also the normal reaction to a break down of a trading range that reverses back inside like we just saw.  Unless some kind of bad news comes out I think we are likely to test the upper end of the range (2075) again.  If instead we break down on Monday then we should be in pullback mode.  The 200 SMA (2014) would be the first logical target.  If we break that then the 50 SMA at 1975 could come into play. 

Sales continue to be poor.

Sales continue to be negative on a YOY basis.  Some would say they are starting to turn up, but that is not really the case.  They have been negative for so long they are starting to be compared to already poor sales.  The fact that they continue to be negative to even more favorable comparisons is not a good thing.


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.

Yesterday Yellen made these remarks.
" So, I think we’re making progress there as well, and this is an economy on a solid course, um, not a bubble economy. Um, we tried carefully to look at evidence of potential financial instability that might be brewing and some of the hallmarks of that, clearly overvalued asset prices, high leverage, rising leverage, and rapid credit growth. We certainly don’t see those imbalances. And so although interest rates are low, and that is something that could encourage reach for yield behavior, I wouldn’t describe this as a bubble economy."

I have the feeling those comments will go down in history beside Bernanke's the subprime crisis is contained remarks.  There most certainly was a reach for yield and there is most certainly bubbles in various assets all around the world.  Both the IMF and the BIS have made comments to the effect the world is at serious risk of another financial crisis.  While Bernanke was assuring us in 2007 that everything was all right the BIS was warning just like they are now.  Don't be surprised if we find ourselves in another crisis in the not too distant future.

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.