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Friday, July 29, 2016

Daily update 7/29 NAAIM survey and American Entrepreneurship in Decline

The BOJ stimulus plan was already discounted by the market as the futures were down slightly on the open.  However, a much worse then expected GDP report provided some buying interest. 

SPX made a new intraday high today, but failed to close at a new high.  Breadth was +61% which was much stronger then normal for the little bit the indexes were up.  Several indexes were actually down.  This is nibbling at stocks.  New highs camein  at 318 the highest since 7/11.  Volume was heavy for the little bit of upside.  This was an odd day.

The futures spent some time above 2168 today during market hours.  However, the 4:00 close was 2167.5.  They surged some after hours.  No break out of the trading range yet.  I heard this is the second tightest 10 day range in the history of SPX.  Not the kind of history that is good for traders.

The green count crossed above the red today, but remains below 50.  This is still neutral, but upside follow through on Monday should be a kickoff to another leg up. 

This market feels surreal to me.  I think this is the most complacent the market has ever seemed to me the entire time I have been a trader.  Today's GDP report came in at 1.2% well below the expected 2.6%.  The GDP is highly revised so it is normally useless in real time.  However, this is the 4th quarter in a row under 2%.  Even if it gets revised higher it could still be under 2%.  I took a look at the GDP chart and there is no instance of 3 quarters below 2% not associated with a recession much less 4.  Recessions are hard to identify early on because often the relevant data gets revised downward dramatically later on.  It is still possible the recent quarters of GDP get revised higher and everything is ok.  On the other hand, we could already be in a recession.  The risk is there which is why it is so odd to see the market so complacent. 

The monthly charts in the market status pages are almost all green now.  This break out is either a kick off to blue skies and beyond or the biggest bull trap in history that seems likely to crash and burn.  The last couple of weeks SPX has held up because selling pressure stops anytime a prior day's low is tested.  However, the sellers always show up when the futures get above 2168.  That looks like methodical distribution to me.  I guess we will see. 

Four of the last six Augusts have been down.  The smallest decline was 4.3%.  The sample size is small, but with the market overbought another down August is possible.  A 4% decline would be a failed break out.  If you head off to the Hamptons next month you might want to check in on things.

This week the NAAIM sentiment survey hit 101.2.


The NAAIM number only got above 100 three other times in this bull market.  Those were once in late Jan. of 2013 and twice in Dec. that year.  There were two occurrences in early 2007 before a pullback that March.  In every instance the market was lower then when the reading occurred sometime in the next few weeks.  None of those readings were bull market tops.  However,  none of those readings came with so many major indexes not at new bull market highs.  One thing is for sure money managers are fully long.  No respondent was net short which is very rare.  While the sample size of readings over 100 is small it would seem likely there will be a pullback down the road that will take price lower then it is here if we continue up.  As for this not likely being a bull market top that is a bit tougher to say.  For money managers to have this much confidence in the market going higher we always have had all the major indexes playing along.  The transports and financials are clearly not playing along at the moment.  While the COMPX and R2000 have been rallying they still have not reached new highs.  I think I can safely say that a failed break out (SPX falling back below 2130 area) would likely bring on a lot of selling.  Money managers are bullish and clearly believe the market is going higher.  Knowing earnings are falling and the economy is shaky just makes that kind of confidence hard for me to understand.  There has been very little selling pressure to test the break out.  With XLF still below its May high and the transports below their April high it is really tough to give the market a clean bill of health.  This looks like a good time to pay attention, but also have a little patience.

I spent a lot of time in the business world at IBM.  Complacency is the bane of any company.  Totally new products are extremely rare.  However, almost every existing product can be made better.  How is that done.  The single best way is to identify what is wrong with the product or the weakest trait and work to make it better.  This same methodology can be applied to anything even society.  I think some people believe I am a negative person because I often point out problems.  Nothing could be further from the truth.  I simply believe the best way to make things better is to understand what is wrong and fix it.  Sweeping problems under the rug fixes nothing and often makes things even worse in the long run.  With that said this is a very interesting article.  American Entrepreneurship in Decline

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.