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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.


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