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Monday, July 18, 2016

Daily update 7/18 Hoisington quarterly review

Sleepy day.

There was a little dip right after the open that the dip buyers came rushing in on.  However, once they got SPX back up to 2168 the market stopped and traded sideways all day.  For three days in a row we have had resistance in this area.  Breadth was strong again at +61% which was high for the amount of upside we had.  That suggests bulls are just nibbling on stocks.  New highs came just slightly below yesterday's count at 178.  SPY volume was just about half of yesterday.  Buying enthusiasm has waned some.  That is understandable given the extended nature of the market short term.

The futures show the resistance in this area pretty clearly.  The question as usual is it insurmountable or not. 

Today lacked buying enthusiasm, but that could easily change as we get more into earnings season.  Selling pressure has been pretty minimal, but that could easily change as we get more into earnings season.  While there is some talk of TINA as usual, there is much more talk about valuation then I have heard when SPX made new highs before.  There has never been a break out to new highs by SPX after more then a year pause with valuations across the market so high. Let me make this clear.  There is no comparable historical situation.  This is an unprecedented case.  Any historical study claiming this or that (and I have heard a few) are invalid.  One of two things is going to happen.  Either SPX stays broken out long enough for the other major indexes to catch up, or the break out fails.  While the economy has picked up a little over the last couple of months it is not enough to be able to say it is getting stronger again.  It could easily relapse in the months ahead at this point.  The rest of the bull case seems to rest on the dollar going down and oil going up.  I don't think either of those things is going to happen.  Investors piled into the market starting last Feb. thinking the earnings recession would come to an end this quarter.  If that turns out to be a wrong assumption there will be considerable downside to come.  Ar this point I can't see anything that indicates that assumption is correct.  I can seen plenty of things that could cause a problem for that assumption, but none of them are for sure yet either.  I think we are in limbo for the moment, but everyone needs to realize that the market could make a decision on that assumption yes or no at any time.

This is a great read on the economy.  Quarterly Review and Outlook, Second Quarter 2016


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