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Wednesday, September 28, 2016

Daily update 9/28 Global trade

Rally day, but...

SPX closed above its 50 DMA.  Now the but.  We started out slightly higher and SPY closed the 9/26 gap down shortly after the open then the selling started.  The market took a pretty good tumble until rumors of an OPEC agreement surfaced.  Stocks and oil started to rally.  They really took off in the afternoon when Reuters reported OPEC had reached an agreement on production cuts.  The catch is they will decide who cuts at the late Nov. meeting.  That certainly sounds solid.  It sounds more like a stroke of genius to me.  OPEC will get the price higher for the next two months without actually having to cut production.  If the deal falls apart at the last minute so what.  Breadth was a strong +70%, but was negative earlier in the day.  New highs increased a bit to 106.  Before the oil news hit the same old pattern of morning strength being sold was present.  SPX climbed above yesterday's high and came to a screeching halt.  Since the 9/9 gap down there are only two days with afternoon highs and those were both news induced. 

Today's bounce has the futures approaching the upper trend line.  We are getting close to the apex so something will happen soon.

The green count shot up today, but remains a bit below overbought.  Another up day would likely get it there.

What happens now?  The overhang of sellers was clearly visible before the oil news today.  While I am totally and completely skeptical any deal will actually happen what do the majority of investors think?  This is why I really hate the computer headline scanning computers.  The algos clearly pushed the market higher without any human traders.  That makes it really hard to judge whether news is actually important for more then a few hours or not.  If there was a fundamental shift in investor perspective the constant selling into morning strength will subside.  Until I see that actually happen I can't say we are ready to rocket higher.  The first step for the bulls is to get an upside break out of the triangle on the futures chart.  If we break out the bottom instead then we have our answer that today's news was not important.

One of Trump's talking points has been our trade deals.  There are many people defending globalization.  They talk about all the jobs created and that it benefits everybody.  My problem is they never show any actual data.  I can see actual data that says it has not benefited the U.S.  Large trade deficits are a negative.  I never hear anybody actually argue that, but they still claim we are benefiting.  Here is an interesting table from World Economics with some GDP numbers. 

NAFTA came along in 1994.  GDP in that decade for the Americas increased .8% so there probably was a benefit (just not necessarily to the U.S.).  I don't know if NAFTA had anything to do with the drop in Europe in that decade or not.  However, neither the Americas nor Europe had growth as strong as the 60s and 70s.  China entered the WTO in 2001 and it was a dramatic change.  The GDP in the Americas was cut in half.  Europe benefited because of increased trade with China.  Asia-Pacific and Africa were the biggest beneficiaries.  The Americas and primarily the U.S. got the shaft.  The globalists can make all the claims they want about how lower prices benefited consumers.  The real truth is the jobs lost hurt way more then lower prices helped.  Huge trade deficits are a very bad thing.  They are at least partly if not majorly responsible for our debt going from $5.6 trillion in 1999 to $19.5 trillion today.  Thank you globalists.  I am not against trade.  Fair trade is beneficial to both countries involved.  What we in the U.S. have is free trade, not fair trade.  There is a huge difference.


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