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Monday, December 12, 2016

Daily update 12/12

Odd day.  Many indexes were down over .5% while the Dow was slightly positive.

SPX was down slightly.  Breadth was -62%.  New highs dropped down to 260.  New lows picked up to 78.  I suspect the bond funds were responsible for that.  Quite the extended looking chart.  I don't really know what else to say about that.

The futures are showing a slight loss of momentum.  The +DI line is back below the ADX line.  That opens the door to this being a short term top.  If we keep going up it will likely be a slower pace anyway.

The green count turned down from overbought.  That confirms a loss of momentum shown in the futures. 

The bull pressure chart is not showing the same kind of buying we saw off the Feb. low or the brexit low.  It would not take much for the long term lines to go negative again.  The post election rally clearly does not have the same power behind it.

Listening to people on CNBC today was very interesting.  After years of being told low rates were good and justified higher valuations we are now being told higher rates are good for stocks.  It is true that sometimes stocks and rates have risen together.  It is also true that nearly every bull market has ended because of rising rates.  Just saying.

One guy said he went to the Heisman trophy presentation Saturday night and all the football players wanted to talk about was the market.  Nothing unusual there!  If that was not enough of a sign of a top how about this.  Steve Leisman commented that he went to his daughter's school show and the usher wanted to know if the financial stocks were going to keep going up.  These are the kinds of stories told about tops in the past.

There was also quite a bit of talk about tax cuts coming next year.  That is a done deal and it would be totally and completely stupid to sell anything now.  Nothing bad can happen between now and year end because nobody will be selling.  Another thing I heard is that the market always rallies into inauguration day.  After that it usually sells off.  Sometimes you hear stuff like this and it becomes self fulfilling.   Other times the market does the exact opposite. 

Here is the chart of what happened after the rate hike last Dec. marked by the yellow arrow.

While the day of the hike SPX closed up nicely it dropped 68 points the next two days.  This is a much different chart then we have now.  That year SPX peaked in early Nov.  By the time we got to the rate hike the market had traded in a range for weeks.  Certainly not a sharp spike up like we have now.  The funny thing about FED moves is that even when they do exactly what everybody expects the market can still get volatile and move around for days and weeks after.  There is such a complacency that nothing bad can happen before year end I wonder if there is going to be as much hedging as usual going into the meeting.  What happens if post meeting volatility picks up as usual?

The rest of the year may indeed be as quiet as everybody was telling me today.  However, if it does not play out that way and people really aren't hedged things could go very different.  I don't really know.


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