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Monday, September 12, 2016

Daily update 8/12 Axel Merk on the FED

Bulls rush in.

SPX closed back above the 8/2 low (2147).  However, most of the daily lows were well above that.  I have added a red line I think better defines the trading range of the last couple of months.  SPX ended the day right around there.  That is also a little bit below the 50 SMA.  There is the potential for overhead resistance around here.  The breadth was a strong +68% and volume was also good.  New highs came in at 30 while new lows increased to 31. 

The rebound in the futures stopped for a bit at the 200 SMA, but then blasted through.  The 50 and 100 SMAs are about another 15 points higher then today's close.  They might provide some resistance.

The red count took quite a tumble, but is still above 50.  The bulls still have a little more work to do.

The bounce off the 2130 major support level occurred right on cue.  The question is whether it is sustainable and long lasting or is a dead cat bounce.  Beats me.  I like the breadth and volume today.  However, this thing really started with the bond market.  TLT did not bounce today like stocks.  It was flat.  What happens to stocks if bonds take another dump?  A look at the daily TLT chart shows it often follows through after big gaps.  It rarely reverses them right away.  FED rate hike expectations for Sept. (after a FED member spoke in an extremely dovish tone today) took a dive.  However, the down move started with Draghi's comments.  It was not about the FED.  The bond market might have been calm today, but I just don't think it is safe to assume the tantrum was a one day wonder.  They seemed very sure on CNBC today there was nothing to worry about for stocks.  Friday was simply yet another buying op like every down move over the last 7 years.  I can't be that optimistic with the way the economy is acting.  I am getting very worried a recession is near.  The ISM services number came in the lowest in this entire recovery.  It caught economists by surprise, but actually makes sense with all the comments we saw about a big fall off in traffic in restaurants and stores.  I have been saying for months the economy is weak, but I did not think we were in recession yet.  I am not really sure if that is still the case at the moment.  The latest data seems to show renewed weakness.  I find this really confusing.  The leading economic indicators blasted off the Feb. low and kept on flying up.  I thought we would see more strength in the economy because of that.  However, so far that has not happened.  The transports appear to be confirming that weakness as they are still stuck in the mud. 

I don't have a clue how far this bounce goes.  The 20 DMA would make a logical upside target if we do not stop here at the 50.  I am sure that a break of Friday's low will bring on a lot of selling pressure.  I think we need to watch this bounce closely to see if it rolls over.  Especially if selling in the bond market resumes.

This is an interesting read about the FED's actions.  Axel Merk Lashes Out At The Fed's Failed Inflationary Focus


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