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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.


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