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Wednesday, May 25, 2016

Daily update 5/25 Worse then we think?

Test of April high.

SPX got within 8 points of the rally high close from back in April.  That qualifies as a retest of that high whether we go any higher or not.  This is what I call an aggressive retest.  That is when the market moves very quickly to retest a prior high or low.  They are prone to failure.  SPX is also at the downward sloping upper channel line which might provide some resistance.  The breadth was +63% considerably lower then yesterday, but still reasonably strong.  New highs increased a bit to 103 which is not a particularly high number.  We had some days over 200 back at that April high, but a number of those were closed end funds.   I can't really say if the divergence in new highs here is meaningful or not.  The market is going to need to generate many more stocks making new highs to progress upwards from here though.  The potential head and shoulders top has morphed into a potential rare W top. 

Interestingly the futures progressed up to the red resistance line and stopped.  That line became clear resistance in the days after the April top was made.  Will it still provide stiff resistance?

Today got the green count above 50.  It is still well short of an overbought reading.  There is more room on the upside.

Aggressive retests have lots of divergences with them by their very nature.  The market goes so fast it does not have time to build up some momentum to continue the move.  The 10 DMA breadth lines are showing a sizable negative divergence similar to what developed in a positive way back in Feb.  Even if the market goes higher these lines will still show a divergence for a while.  This is just an example.  There are lots of them.  Divergences do not tell us if something is going to reverse, but they do indicate that a reversal could be sharp.  That is what happened back in Feb. with all the positive divergences we had.

SPX arrived at previous resistance on a fast move for no apparent fundamental reason.  Doesn't that make it seem like this move has the potential to be nothing but a fake out?  I guess we will see.  SPX falling back below the 5/10 high (2085) would be the first warning of potential trouble.  That would indicate the break out over that high failed.  That might bring out some sellers.  As I said last night a close back below the 50 DMA (2064) will certainly bring out many more sellers.  I think it will be tough sledding on the upside above 2100.

Today turned the short term trend up across the board.  I am a little suspicious there won't be much if any follow through.  We saw that many times last year.  A trend would just get established then the market would reverse.

I saw this interesting article in the USA Today.  Why U.S. companies aren't as rich as you think

U.S. companies are sitting on a record $1.8 trillion in cash and investments. One problem. They also are on the hook for $6.6 trillion in debt.

Talk about being cash rich but debt poor. U.S. companies only hold 28 cents in cash for every dollar they must repay in debt, the lowest cash-to-debt ratio since the financial crisis wound down in 2009. It's even uglier situation if you exclude the 1% richest companies, The other 99% of the less fortunate companies only have 15 cents in cash for every $1 in debt they owe. That is "the lowest we've seen in the past decade, including the years preceding the Great Recession," according to the report co-authored by Andrew Chang and David Tesher of S&P Global.

You might have thought it would be about companies not have as much cash as Wall street indicates.  Not the case.  It was all about the large amount of debt.  Now think about the fact that it is highly likely Apple is not the only company that Wall Street is lying about when it comes to cash.  I think it very likely there is much less cash especially in the so called richest 1% of companies.  That means that article is likely too optimistic.

This was another good article from the USA Today.  Confusion is name of game on Wall Street

Rant on:

Several states have filed law suits against the Federal government because of Pres. Obama's bathroom rules.  Here is what I don't understand.  Something as simple as what bathroom to use causes a huge firestorm on social media.  At the same time the POTUS can flat out lie to the American people and dead silence.  The same applies to media outlets that have "forgotten" to check the facts before spewing forth articles filled with misinformation or flat out lies.  Nothing on social media.  Sometimes I wonder if I actually live in a dictatorship and just don't know it.  I cannot trust the government or the media to tell me the truth.  A situation I find very disturbing.

Rant off:


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