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Wednesday, August 31, 2016

Daily update 8/31

More hitting of the bids today.

The market sold off right from the start until mid day.  There was an afternoon rally that made things look a little better.  SPX ended the month down about 3 points.  I was a little surprised it was allowed to have a negative month.  Breadth was -59%.  New highs dropped considerably to 115.  This chart is starting to look a little like a possible slow roll over top. 

The -DI got above 35 today.  That opens the door to a bigger sell off.  It has been a long time since we had one of these signals because it only applies when SPX makes new bull market highs.  While the door is open to a bigger decline it does not mean the bears will step through it.  What it means is that down side risk is now higher then it was yesterday.  Since we are coming into the season of big declines this might be an important sign.  It might be a good time to plan hedging or shorting strategies so they can be applied if needed.

The red line crossed 50 today, so the internals have continued to weaken.  The last time we crossed 50 the buyers stepped in and SPX went to new highs.  If that were to happen again it would negate the -DI signal from the futures chart. 

The bull pressure chart shows the short term lines have been close together for a while now.  The intermediate lines are getting awfully close together now.  The long term lines are still ok for now.  The wave of buying pressure we saw on the break out to new highs is fading.  There has been no real selling pressure at all though. 

Market internals are weakening during this consolidation period.  That is normal and does not really tell us whether this is a top or a consolidation to go higher.  The transports still have done nothing.  The financials have had some bids the last few days as speculation grows on higher rates.  However, XLF still remains several percent below its 2015 high.  This market still looks out of sorts.  I believe it is more likely this is a top rather then a consolidation to go higher.  Many people are waiting on Friday's employment report.  If it is strong rate hike expectations will likely rise.  If it is unexpectedly weak they will tumble.  I have no idea what happens if it is "just right".  Tomorrow is likely to be another slow day while we wait.


Tuesday, August 30, 2016

Daily update 8/30

More nothing.

There was no upside follow through from yesterday's bounce.  SPX closed slightly below the 20 SMA again.  The breadth was slightly negative.  New highs held in there at 163. 

The futures tested the 100 SMA again today and bounced.  Not much bounce yet though.  The bulls need to get going or we will fall below the 100.

The lines are right on top of each other.  The indecision continues.

SPX closing back below the 20 so fast shows a lack of buying enthusiasm at the moment.  Dip buyers are still active, but nobody wants to chase price higher.  Today was the 5th day out of 6 that we had the high in the morning and the low in the afternoon.  That is pullback type action only the damage to price is almost nothing.  Pretty odd.  If that pattern keeps up price will break down eventually.


Monday, August 29, 2016

Daily update 8/29

Buying panic on the open lasted all of 10 minutes.  The rest of the day was a slow grind up until mid afternoon then a slow grind down. 

SPX bounced enough to get back above the upper yellow line and the 20 SMA.  This is probably the bounce that was interrupted by the Fischer comments on Friday.  You have to squint to see the volume bar.  The breadth was +68%.  New highs slipped a bit to 169.  The market got a little mixed up today.  The financials rallied strongly on the prospect of higher rates.  However, interest rates collapsed calling the FED's bluff on a rate hike.  I guess the bond market thinks like I do.  The FED is nothing but talk on a rate hike in Sept.  Now everybody will be watching Friday's employment data for a final clue before the next FED meeting. 

The futures bounced off the 100 SMA.  I have no idea how long the bounce lasts though.

The green line crossed above once again.  The braided look continues as does the consolidation. 

All the gain in SPX since the middle of July came on the Aug. employment data.  It is certainly possible we continue to chop around until Friday.  Looking like a great time to be at the beach.


Friday, August 26, 2016

Daily update 8/25 Factory orders

Yellen's speech was very similar to a regular FOMC meeting announcement.  The algos read the speech as hawkish and sold off.  Humans seemed to view it dovish and started a buying panic.  Then Stanley Fischer in an interview on CNBC said they might raise rates twice this year.  That sent rate hike expectations for the Sept. meeting from 18% to 36% and caused sell offs in many markets and a furious rally in the dollar.  Apparently the FED wants to get expectations high enough so they can feel free to hike in Sept. if the data permits.   Expect more hawkish talk if the FED funds futures don't get to pricing in higher odds of a hike in the next week.  The stock market has been living in a world expecting no rate hikes until at least Dec. and maybe not even then.  People might end up rethinking that now.  How much that might affect the market is anybody's guess.

Last night I mentioned that lack of confirmation of the break of the 20 SMA usually means a bounce.  The market clearly tried to bounce this morning, but the FED interfered.  The close was low enough to fractionally confirm the break.  I hate it when it does that!  Technically we have a confirmed break, but by such a small amount it could be meaningless.  We will have to see what happens on Monday.  Breadth was -55%.  New highs increased to 193.  SPX closed below the upper yellow line of the megaphone pattern.   It has been support several times, but I am not really sure if that is important or not.

The futures had a fairly wild day relative to the extreme low volatility of recent weeks.  At the end of the day it held the 100 SMA as support.  This is a good place to bounce from, but will it?

The red count pushed a bit higher, but remains below 50.  With SPX below the 20 DMA a cross above 50 this time would probably bring on more selling instead of buying like we saw in early Aug.

The dollar index tested its 500 SMA for a third time.  The other two times it launched a pretty strong bounce.  With today's very bullish looking candle another rally could be coming.  The last one ran into trouble at the downtrend line.  However, that line is much closer to the 500 SMA this time.  We also have a second higher low in place now.  I think the index might have a chance to break out above the line this time.  If that were to happen it could affect a lot of things.  Many people think the dollar is topping. 

Next week is going to be interesting.  While many big boys are probably going to be on vacation I think many of them will have much to ponder this weekend.  It may take a couple of days to see exactly what affect today's FED doings will have.  The big currency moves that happened could easily have ramifications around the world.  I have a hard time seeing how this could be bullish, but I am often amazed at how Wall Street is able to spin things.  I guess we will see.

The latest factory orders came out and seemed to spark some excitement.  The headline number is incredibly noisy and useless.  Here is a look at consumer durable goods which historically has been a better read on the economy.

While the latest reading was up a bit over last month's it is still negative YOY.  It is also in the same area as the prior months reading before the dip last month.  Remember this has been negative so long it is being compared to already weak numbers and still coming up negative.  Still no sign of an improving economy here.

The FED has never raised rates with the economy this weak.  I suspect the hawkish talk is intended to get the market to sell off enough to give them an excuse not to hike.  I could be wrong, but I have a hard time believing the FED really believes the economy is strong here.  I am positive they are not that stupid.  I think it is nothing but talk.


Thursday, August 25, 2016

Daily update 8/25

The market tried to bounce, but was met with a few sellers in the afternoon. 

Third day in a row with the high in the morning and the low in the afternoon.  While this is not very good action for bulls no important support has been broken.  The selling is pretty mild so far.  The breadth was slightly positive.  New highs were 116.  Not very good this close to the high.  SPX closed below the 20 SMA again, but above yesterday's low so it did not confirm a break yet.  More often then not that pattern ends up in a bounce.

The ADX indicator continues to act strange.  It is now up to 30 indicating a fairly strong downtrend, but I still can't see an actual downtrend in the price.  Odd, but probably meaningless in the big picture.   The market has been sideways long enough for the 100 SMA to get caught up to price.  Breaking that most often sets up a run to the 200 SMA which at the moment is 50 points lower. 

The red line crossed above the green again, but remains well below 50.  This is starting to look like the market is churning here.  At highs that is a form of distribution.  It started with the early Aug. pullback.  Evidently there are a few investors out there that don't believe the market is going higher from here.  I can understand that point of view.  Time will tell if they are right.

Yellen is on tap tomorrow.  I don't expect it to be relative to the market, but you never know.  It is likely to be more esoteric central bank gobbledy gook. 

The market has shown a bearish change in character three days in a row.  Despite the lack of technical damage so far if the pattern keeps up the market will eventually break down.  The first key support is the Aug. low of 2147.  Below that is the 2130-35 zone.  A break of 2147 should accelerate down to the second zone.  In theory 2130 should be strong support and a good place to bounce from.  On the upside 2193 appears to be stiff resistance.  We could easily keep on churning the rest of the month.


Wednesday, August 24, 2016

Daily update 8/24

A little follow through selling today.

Curious how the upper line on the megaphone pattern has been holding as support.  Probably just coincidence.  SPX closed below the 20 SMA for the first time since breaking out back in July.  The breadth was -66%.  New highs dropped way back down to 107.  This is two days in a row we hit new lows late in the day.  Ever since the break out all the selling was done in the morning hours as dip buyers came in to hold the market up.  This is a change in behavior, but it remains to be seen if it is just a short term phenomenon.

The futures ended the day right on the key 50 SMA.  The 100 is just a little further down.  We remain in the sideways pattern for now.

Sill in limbo.

The intraday action and the close below the 20 DMA indicate a possible change of behavior in the market.  It is possible we have started a pullback, but we have yet to break any important short term support.  SPX and the COMPX turned their short term trend to neutral again.  The last turn up produced nothing in SPX.  R2000 remains up.  Upside momentum is completely gone, but the sellers have not been ambitious so far.  Yellen will be speaking at the Jackson Hole conference on Friday.  As dovish as she usually is I can't imagine many people would be selling in front of that.  Today might have been a little hedging just in case she says anything about rate hikes.  A bounce tomorrow in preparation for an uber dovish speech might be possible.  Next week might be more interesting.


Tuesday, August 23, 2016

Daily update 8/23 New SEC Money-Market Fund Rules Forcing a Liquidity Squeeze?

Test of 8/15 high.

The resistance from last week was not just Aug. option related it looks like.  SPX ran up to .4 of that high early on and turned back.  It made the low of the day in the afternoon which is not something we have been seeing much of over the last several weeks.  The breadth was +64%.  It was +79% at 10:00.  Even with all that strength resistance held.  New highs jumped up to 219, but that is nothing really to shout about at all time highs. 

The futures ran right up to their prior high early this morning and stopped.  They worked slowly but surely lower the rest of the day. 

The green count made no upside progress despite the up day.  Still in limbo here.

Last night I wrote "On 8/2 we had a dip that caused negative crossovers and the bulls responded with a little buying.  However, they failed to push price very far.  Now the internals are getting negative again, but we have not had much of a down move to bring in buyers."  The negative crossover sparked some buying.  However, as soon as SPX got close to its prior high the sellers squashed the rally.  I would guess this resistance will hold for now because we did not get a deep enough pullback yet. 

Some people say the new money market rules the SEC is implementing in Oct. are the reason the LIBOR rate is rising.  Certainly possible.  Here is a good article on the changes and possible consequences.  New SEC Money-Market Fund Rules Forcing a Liquidity Squeeze?


Monday, August 22, 2016

Daily update 8/22 Investor Complacency Is Smashing Records while recession risk rises

Snooze fest continues.

I have seen a few articles coming from people saying they have their toes in the sand on the beach.  This market looks like most people are on vacation.  The breadth was slightly negative.  New highs dropped down to 90.  Clear lack of desire on the part of the bulls.

The futures appear to be drifting completely sideways.  The odd thing is ADX is actually rising with the -DI line above the +DI line.  That is supposed to mean the downtrend is getting stronger.  I am having a hard time visually seeing any kind of downtrend there.  Very odd.

The red/green counts are still in limbo.

The MCO remains negative, but now the 10 DMA lines are getting awfully close together.  It would not take much now to get a negative cross there as well.

The short term bull pressure lines have a slight negative cross.

On 8/2 we had a dip that caused negative crossovers and the bulls responded with a little buying.  However, they failed to push price very far.  Now the internals are getting negative again, but we have not had much of a down move to bring in buyers.  I can't recall ever seeing the market quite like this.  The intraday range is incredibly small which usually makes some kind of short term top.  When the boys come back from the beach we will probably learn much more of what is really going on.  Since the brexit vote there has clearly been a rotation from defensive stocks to more cyclically sensitive stocks.  I am sure that was in anticipation of the economy and therefore profits picking up.  I just can't find any signs that is happening yet.  Sometimes markets guess wrong.  When they do (just think brexit vote result)  they can turn on a dime and sharply.  Either stocks fall back to earth or the economy will pick up for real.  I will be watching to see which happens.

I have commented on how this market feels extremely complacent.  Here is a look at a technical definition of complacency.  Investor Complacency Is Smashing Records

I could understand if the economy was picking up nicely, but it isn't.  In fact this look at the latest ECRI USCIg data suggests the opposite.

I had to do a double take when I looked at this data.  I thought maybe I clicked on the wrong thing.  When I last looked at this index last month the May-July data points were in the 1.8 to 1.9 range.  In the historical data dropping below 1.5 is a major recession red flag.  Below 1.0 and the economy is likely in a recession.  I was pretty skeptical of this data at first, but then I started thinking about the reports of restaurant and store traffic falling of dramatically.  In the context of this extremely weak data over the summer the fall off in traffic makes much more sense.  I was really scratching my head about it at first.  It is possible we are in or about to be in recession.  In order to get out of trouble the USCIg needs to get to 2.0 or above and stay there.  There are no instances of several months like we have now below 1.5 and the economy did not go into recession.  Just keep in mind that is looking at historical data with final revisions.  This more recent data could still be revised higher.  It could be better or worse then it looks a few months from now.  I will keep an eye on this every month now to see what happens.


Friday, August 19, 2016

Daily update 8/19

While the daily pattern is not exactly every other day a different direction it is pretty close.

One thing that is consistent day to day is the low volatility.  Only the direction changes.  Breadth was -57%.  New highs fell back down to 114.  Resistance held today.

The futures bounced off the 50 SMA again today.  They didn't get much traction last time, but that might have been because of option expiration. 

The green count turned back down with the down day in the indexes.  Neither the bulls or the bears are very ambitious.

Resistance has been strong this week, but it might have been option related.  If so it could be gone next week.  If the market still fails to get traction then a pullback in Sept. seems likely.

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


Thursday, August 18, 2016

Daily update 8/18

A little upside follow through from yesterday's bullish engulfing bar on the futures.

SPX did not quite get to a new high close.  Breadth was +67% which was once again very strong for the little bit the indexes were up.  More nibbling of stocks.  I don't think I have ever seen so many strong breadth days with so little movement before.  The price pattern is kind of like a slow creep up pattern, but that normally has breadth readings in the mid 50% range.  This is out of the ordinary at least in my experience.  That means we won't really know if there is any particular meaning in this price action until we can look at it in hindsight.  New highs rebounded nicely to 168.

The futures did not really do much since the bullish reversal bar.  They are currently only 1.75 points higher then the high of that bar.  The market acts like there was some resistance at the highs today.  That may be option related and be gone after tomorrow.  If it is option related further upside tomorrow could be tough. 

The green count recrossed to the upside, but is still below 50.  Will it be able to cross this time?

Since SPX crossed 2160 the upside has been tough to come by.  However, the dip buyers rush in on every little teeny tiny pullback.  They just have little ambition to push prices very far.  This looks like a fragile pattern should some sell catalyst come along.  However, you can't really predict that.  In the mean time we could continue to crawl higher.


Wednesday, August 17, 2016

Daily update 8/17 Industrial production

Both the bulls and the bears took a turn today.

The bears took their turn first sending SPX below the 20 SMA.  However, the dip buyers showed up mid day and sent SPX back above the MA.  Curious that SPX hit my yellow trend line dead on before the bounce.  Probably a coincidence.  The breadth was dead even.  However, new highs dropped way down to 82.  That is the lowest number since 6/14 (which was before the brexit vote and the break out to new highs).  New lows came up a bit to 14.  This may be a sign the rally is weakening, but we will have to see if the count rebounds in the next few days.

The futures got slightly below the 50 SMA this morning before bouncing.  That bounce resulted in a bullish engulfing bar which theoretically should be bullish.

The red count dropped a bit, but is still above the green.  Still neutral here. 

This morning's low on SPX was just about where it was one month ago.  In other words this uptrend is slow.  But up is up as they say. 

There was a big bump in the latest read of IP.

The surge got IP back above its 12 month MA.  This is a very good start if it is continues to go up.  However, the surge was largely due to the hot weather and increased oil drilling.  The increase in oil drilling seems likely to be sustainable with oil prices holding up so far.  However, the hot weather is obviously going to come to an end.  It will take another couple of months to see if this level holds up through revisions and IP gets even stronger.  It has the tendency to make big moves against its current trend periodically that are not sustained.  Since it has been trending down for over a year it needs to prove itself here.

The most troublesome thing lately has been many retailers and restaurants complaining about big drops in traffic.  The business world has been in recession for a while now with multiple quarters of declining earnings.  It is possible that consumer spending is starting to roll over.  Unless it has been too hot to go out to eat and shop!  I don't think we can blame the weather this time.  The back to school shopping season did not generate any buzz so far.  If the consumer continues to weaken it would surely lead to recession at this point.


Tuesday, August 16, 2016

Daily update 8/16

Wow.  A down day.  I thought those had been outlawed.

The volume picked up a little bit, but was still light.  The breadth was -66%.  New highs dropped way down to 107.  SPX ended right at the top of the prior trading range before the 8/5 mini thrust up.  There could be support here.  It might bring out a few more sellers if it continues down.  The more important support is down around 2147. 

The futures are currently sitting right on the key 20 SMA.  Will they break or bounce?

The red line crossed above the green, but remains below 50.  Still neutral here.

There has not been any technical strength to speak of for the last three weeks.  I know the word top has been removed from the English language, but this is what they used to look like once upon a time when they actually happened.  Since we ended the day right on support the bulls may show up again tomorrow.  Even if this is a top forming it could still take more time to complete.  There has been a complete lack of selling pressure since SPX made its new high.  Unless something has changed that could still be the case tomorrow. 


Monday, August 15, 2016

Daily update 8/15 Recession probabilites

The slow grind higher continued.

The market gapped higher this morning, but found its high early in the day and traded sideways to lower in the afternoon.  Breadth was +62%.  Once again strong for the amount of upside.  People are just nibbling on stocks.  New highs were 211 near where they have been lately.  Not much to be learned from the futures, but the red/green count is interesting.

Despite the gap up and gains today the green count fell and the red count rose.  There must be some profit taking going on in some stocks.  Whether that ends up enough to cause a pullback remains to be seen.  It has been over 3 weeks now since the green count has been above 50.  That is why upside progress has been hard to come by. 

The COMPX confirmed a break out above its 2015 high which turns its primary trend neutral.  R2000 still has several percent to go, but is coming on fast.  The transports on the other hand have made no upside progress.  XLF has made a little progress and has gotten above its May high, but only marginally.  The market is still not completely in gear.  The volume has dropped off a cliff. Everybody is on vacation.  Good thing the Olympics are on.

This article has a number of charts on the economy.  NBER’s Big-4 Indicators had a narrow miss

This is a proprietary indicator from recessionalert.com.  It currently stands at 11%.  Since 1959 there have been 9 previous occurrences of this indicator getting this high and 8 of those times a recession was imminent.  Only in 1966 did the economy recover.  I suspect that instance had more to do with war then the underlying economy.   It is not my imagination that the economy is weak and the risk of recession is high.

Here is another thing that might be starting to signal trouble.

The 3 month LIBOR rate is at the highest level it has been since falling down in 2009.  This rate and the TED spread were good leading indicators of the trouble in 2008.  I have seen a few articles on this recent run up in LIBOR.  It is starting to get a few people's attention.  What this is really telling us is that default rates are rising.  Banks are getting a little worried about borrowing from each other, but only a little at this point.  A lot of things in the bond world are based on LIBOR.  People will notice if it keeps rising.

I find it pretty interesting that when people on TV are asked what could go wrong nobody mentions recession.  Recession worries have completely gone away, but the recession risk is the highest it has been this entire recovery.  No worries.  I am sure central bankers have everything under control.


Friday, August 12, 2016

Daily update 8/12 Insana: Bubble boys got it wrong

Another sleepy day.

 I can barely see the volume bar.  I guess everybody is on the beach and/or watching the Olympics.  At least the Olympics have provided some excitement.  That is a lot more then I can say for this market.  Even some of the hosts on CNBC are starting to sound a little bored.  The breadth was slightly negative.  New highs dropped down to 160.  Not much enthusiasm right now.

The futures have gone sideways enough for the 20 SMA to catch up.  Ordinarily I would say that might cause a launch higher.  However, the last time we were in this condition the futures just traded sideways on top of the MA for a while.  Until that MA breaks there is not much to talk about on the downside.

The green count dropped a bit today so it remains below 50.  Not much new here.

Not much to say.  Somebody wake me up when the market actually does something important.

Wow.  A public flogging.  Ron Insana was on CNBC talking about the group of billionaires that are saying we are in a bubble.  Insana: Bubble boys got it wrong  I have seen this movie before.  In 2000 there were a few smart people saying stocks were in a bubble.  They were made fun of in a very similar fashion.  The same with the housing bubble in 2006.  Of course all the people that said those were not bubbles  now admit they were.  This will be the same.  Ron Insana going on TV and saying what he said is a perfect example of the complacency in the market place.  He is absolutely sure the market is only going to go up from here or he would not have done that segment.

The fact that we are in a bubble is clear.  The only unknown is when it will pop.  That segment on CNBC makes me wonder if the end might not be all that far off.  Time will tell.



The information in this blog is provided for educational purposes only and is not to be construed as investment advice.