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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.


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