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Tuesday, August 9, 2016

Daily update 8/9 Gross private domestic investment and IP

Resistance held.

The bulls actually tried to push prices higher today.  They pushed SPX to a new high, but then the buying was met with enough sellers to squash the rally.  The breadth was barely positive.  New highs were good again at 265. 

The futures rose above the resistance line, but failed to stay there again.  They ended the day just slightly below it.  It is starting to look like the futures broke above one resistance level only to run smack into another one. 

Both the green and red counts dropped slightly today.  Neither side seems to want to grab the power.

It looks like we have actual resistance here rather then buyers being shy to push prices higher.  How stiff it is remains to be seen.  Internals are weak so the market remains vulnerable to a sell catalyst. 

Here is a look at both gross private domestic investment (GPDI) and industrial production (IP) together.

We have been tracking that IP has been negative for a long time.  Now the GPDI has also gone negative.  Since 1970 this has been a sign that a recession had already started or was imminent.  There were two instances in the 50s where the IP went only slightly negative and it was 1 year before a recession started.  In the middle 60s the same thing happened and it was 18 months before a recession started.  In all three of those cases IP barely went negative.  Whenever both indexes have been clearly negative like they are now it has meant a recession was imminent.  Everybody keeps telling me the economy is doing great.  Some even say the FED should be raising rates.  It just isn't so.  A lot of times the economy will have a period of weakness and one last spurt before it rolls over into recession.  It is possible we are seeing that last spurt now.  At the moment it is limited in scope.  If it broadens out across the economy there will be signs.  If it does not broaden out then the U.S. will likely fall into a recession.


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