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Thursday, November 10, 2016

Daily update 11/10 House of Debt

The Dow made a new all time high today.  It was the only index to do so.  I think this is the moment of truth.  For the last two years the market has either been consolidating to go higher or forming the mother of all tops (there is no top in the last 100 years that took this long to form).  I believe it is do or die time for this market. 

SPY closed the 9/9 gap down today.  There are no open gaps above.  Was this a second kiss goodbye of the Feb. uptrend line?  The volume was even bigger then yesterday.  Now this looks a lot like a blow off climax top.  If this chart was upside down I bet many bulls would be screaming climax bottom.  Buy, buy, buy.  Breadth was -53%.  New highs increased to 282.  Here is the kicker.  New lows spiked up to 170.  Today was a massive rotation.  The much talked about FANG stocks all got sold.  Here is a look at QQQ.

That is an ugly chart on a day the Dow makes a new high don't you think.  Previous high flyers are getting sold and previously beaten down stocks are getting bought.  That looks defensive to me.

The futures poked their head above the trend line I mentioned yesterday, but settled back to it.  I am not too sure they will be able to stay above it.

The green count increased slightly, but remains below overbought.

This reminds me of both the 2000 and 2007 tops.  While there was some skepticism yesterday it was all bull today from what I heard on TV.  One of the first things I heard this morning was a recorded interview of Stanley Druckenmiller telling everybody he sold his gold and has moved into growth related investments.  He has been telling everybody the market seemed likely to crash for probably two years now.  This seems like bear capitulation.  It gets a little more curious though.  He has admitted many times he called the 2000 top.  After fighting the lure of tech stocks in the late 90s he publicly announced loading up on them in 2000.  If I remember correctly he literally did it right at the actual price top.  Sometimes lightening does strike twice.  Time will tell.  CNBC paraded plenty of other bullish guests.  Of course they crowed over the Dow making a new high.  However, I heard that four stocks made up 180 points of the 219 points gained today.  That is very narrow.  Usually not good.

Here is why I think this is the moment of truth.  Investors have been very patient the last two years while the market has been struck in neutral.  That is an extraordinarily long time.  I presume that is because people do not know of any better place to put their money.  That is understandable with the everything bubble.  However, investors patience won't last forever.  The lagging transports and financials are catching quite a bid.  It is possible they will make new highs and the entire market takes off.  On the other hand, it is possible the rallies fizzle and those indexes fall back into their trading ranges.  I think that will bring back recession worries and cause selling.  Here is why the recession worries seem likely to come back.  Quite a number of stores and restaurants have talked about declining traffic recently.  They are trying to blame it on the election, but maybe there is more to it then that.  Ford had previously announced plant idlings for Oct.  GM just announced 2000 layoffs starting n 20017 as they stop third shift production at a couple of plants.  I have talked about the rising auto inventory for more then a year and said eventually production cuts were coming.  That time is now.  Auto company layoffs have often been signs of recession.  I really don't know how many times there have been layoffs not associated with a recession, but I can't recall any off the top of my head.  If more auto companies start doing the same thing it is likely game over.  Personal consumption in the Q3 GDP report was actually lower then Q2 despite the boost in stated growth.  I don't give a lot of credence to GDP reports because there are a lot of revisions.  However, we heard stories of falling foot traffic way back in Aug.  It is not hard for me to believe the GDP report might not be too far off for that component.  Anecdotal recession warning signs are stacking up.  I can't believe that some smart investors won't notice.  The failure of the market to truly break out and go higher will call attention to all these signs. 

I don't know how much higher we will go.  While this could be a final blow off top those can carry further then you might expect.  They usually reverse sharply.  The selling in the FANG stocks today while not necessarily a rally killer it certainly will not increase investor confidence.  Today might have been the end of the road.  This is the fourth time SPX has climbed above the 50 DMA since the 9/9 gap down.  A failure this time seems likely to bring out more sellers then last time.  I believe the mild pullback we saw since the Sept. high had to do with a reluctance to sell before the election.  After all, the prevailing logic was Hillary would win and the market would go up.  The election is over, but we don't exactly know what Trump will do.  There is uncertainty out there even though the pundits are trying to make us believe otherwise.  Lets see if the bulls have the desire to push us higher. 

This is a great primer on debt.  House of Debt


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