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Friday, July 15, 2016

Daily update 7/15 Industrial production (IP)

That was the 7th gap up in a row.  You don't see that very often.

Despite the small pullback breadth was slightly positive.  New highs dropped way down to 183 though.  A loss of momentum.  Not much more to say at the moment.

The futures took a bit of a dump after the close as news hit of a coup attempt in Turkey.  The only thing surprising about that is that it had not already happened.  I have been expecting something to happen over there.  That was the most openly corrupt government I have seen in my lifetime.  Anyway, back to the market.  With SPX at new highs the key here will be the -DI line on a pullback.  Unless it gets over 35 the bulls should not have anything to worry about when it comes to buying the dip.  If the -DI line gets over 35 then the door to a bigger pullback would be opened.  The market might not step through the door, but the possibility would be there.

The market remains overbought and losing a bit of steam.  With breadth being so strong on this rally one would normally expect a retest of the high after any pullback.  The complicating factor of course is the possibility of this being a blow off top.  Those can collapse very quickly.  Key support should be 2130-35 on SPX.  A test down there should find buyers unless something drastic happens.  I assume the market will not panic over a change in government in Turkey.  I could be wrong though.  I use logic and the market is prone to emotion sometimes.

I heard Bob Pisani say something kind of interesting today.  The latest data showed some signs of a pickup in inflation.  I would expect that with the price of oil doubling off its low and many other commodities having moved up.  There was also a rise in rent.  What Pisani said was that nobody was positioned for a pick up in inflation.  If that were to happen it could cause problems.  I expect the dollar to eventually rally and oil to fall again.  That should mean any inflation would be transitory.  However, there could be enough inflation in the system to show an increase for a few more months.  That might make some bond holders nervous since the 10 year rate is at all time lows.  A backup in rates could certainly cause some strife.  Money managers are overweight over valued dividend stocks.  Those stocks usually get sold when rates go up whether they are overvalued or not.  TLT is pulling back some from a very overbought condition.  The bond market occasionally has hissy fits just like stocks.  A hissy fit here would not be good for a lot of money managers,  Whether that selling would spread to other stocks or be a positive for other stocks is beyond my pay grade.  I think we need to keep an eye on TLT for a while see what happens.  As a side affect higher rates could be a positive for the dollar which might be a negative for gold.  Whew.  The more I think about this the more complicated it gets.  Maybe I better just stop.  After all it is Friday night!

Here is the latest IP data.

IP is trying to turn up.  However, we do not have enough data yet to say it is.  It needs to get above the 12 month SMA and stay there through revisions.  I saw this statement from the report that makes me wonder if this pickup will last though.

“The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning.”

We know auto inventory is high and sales have been struggling of late.  I saw a headline somewhere that auto sales in June rose less then expected.  I am not sure we can depend on auto manufacturing continuing to increase and production of other goods was flat.   We will just have to see what the next couple of months look like.  Maybe things are getting better, but maybe they aren't.  Can't tell yet.

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


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