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Friday, July 8, 2016

Daily update 7/8 Civilization

Interesting day.  Apparently when the employment report came out better then expected somebody yelled "Don't just stand there, buy something".  And so they did.  It was a flight to everything.  Stocks, bonds, and precious metals all up on the day.  It didn't matter that when you average with last month's extremely week data you come up with about the same numbers we had in recent months before May.

SPX tested the May 2015 high today.  It was briefly above it, but failed to hold it.  While volume was higher then yesterday, it was below the 50 day average.  Not exactly the strongest looking break out.  On the other hand, breadth was a super strong +85%.  New highs were 321.  SPX is in the key resistance zone.  Now we will find out the real truth.

The futures tested the brexit vote overnight high.  They ended just slightly above it.  The jury is still out on whether this will be a successful test or get rejected.

The green count is massively overbought now.  It hasn't been this high since 12/29/15.  Right before the Jan. collapse.  Not exactly the best of conditions to be in when testing such an important high from more then a year ago.

The weekly chart is nowhere near overbought.  While the green line is above the red it is well below 50.  Not only that, with this week's rally the green count fell and the red count rose.  Again, this is not an ideal looking chart for a retest.

 It was interesting listening to the talk on TV.

1. Bob Pisani was busy saying the employment number means we have a Goldilocks situation hence the buying spree.  There is nothing Goldilocks for stocks when revenue and earnings are contracting and credit standards are tightening.  Fundamentally this is the exact opposite of a Goldilocks situation.

2. I heard one guy say he could think of a hundred reasons why the market should go down, but it is going up.  I can't fight it any longer.  This is known as bear capitulation.

At the May 2015 high there were divergences in market internals.  It was not a surprise to be a top.  However, all the major indexes in the U.S. and abroad were also at the high.  That kind of strength made me think at the time that high would be retested.  It was in July and again the market sold off.  Global markets were still pretty good shape with a number of them also near their highs.  I was not sure what to think exactly, but I would not have been surprised to see a retest.  After the sell off in Aug. and subsequent rally I thought we might get a retest then.  That rally fell short, but here we are now.  This time the market is not in good shape.  The bulls say the advance decline line is at new highs so the market is strong.  They also claim new highs are strong so we are going up.  The new highs are probably irrelevant.  The final high in Oct. 2007 saw 351 new highs which were more then we had today and SPX proceeded to drop 50%.  As I look at the market the advance decline line is the only positive I can find.  I can find lots of problems.

These are major indexes that are not anywhere near their old highs.  This ain't good.  As I showed recently many world markets are down 15 to 20%.  That ain't good either.  The scariest thing to me though is the European banks.  Many of them are down 50-60%.  That is very reminiscent of U.S. banks in 2008 right before the Lehman moment.  A major financial blow up could be right around the corner.  At the very least I have to say the risk is very high. This may actually be what was driving the markets today.  Maybe it was largely European money seeking safety in U.S. stocks and bonds along with gold.   Who knows.

The bottom line is that there are so many things wrong the market really needs to prove itself.  Head fakes happen all the time.  Just look back at the brexit vote sell off.  Before every 50% collapse there was one final high.  This looks like a text book bull trap to me.  I guess we will see how it plays out.

The VIX closed at 13.20.  This year getting below 13 has been a great sell signal.  A gap up on Monday would likely get the VIX down there and could spark a big reversal.  To go higher the bulls are going to have to be willing to keep chasing price in an overbought market and low VIX.  That seems unlikely to happen.

The coming earnings season may completely change the mood of the market.  I heard them say on CNBC today a CEO survey had 97% of the respondents saying the brexit vote would hurt their earnings over the next 6 months.  Wow.  They are already lining up to use it as an excuse.  That may lead to them lower earnings expectations for the rest of the year when they issue their current reports.  At current valuations that would probably not be well received by the market.  This entire rally off the Feb. low was built on the premise that Q2 would be the earnings trough.  This earnings season could either give credence to that assumption or totally blow it out of the water.

I was pondering the events of this week during lunch and had this awful feeling civilization is spiraling downward in a truly scary way.  Then I ran across this article.  The Thin Veneer Of Civilization That We All Take For Granted Is Evaporating All Over The Globe  One thing this article talks about is something that has disturbed me for many years.  Many young people today have no respect for other people.  There was a case in Jacksonville a few years back where two 13 year old boys killed a 13 year old girl.  They said they wanted to see what it felt like to kill somebody.  The media is no help as they fan the flames of racism every chance they get.  How do we get out of this downward spiral?

Today turned the short term trends up across the board.

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


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