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Tuesday, December 20, 2016

Daily update 12/20 Was there an iflection point in July?

Dow 20000 watch continues.  Jim Cramer stayed on CNBC past his usual time this morning because he wanted to be there when it happened.  Only it didn't.

The bulls showed up overnight pushing the futures higher.  However, 20 minutes after the open (Dow within 13 points of 20000) sellers showed up and capped the gains for the day.  This is a bit of a problematical price pattern developing.  It could be a pause to go higher or a short term top.  There is clearly resistance here so the bulls will need to power through.  It is probably not a given they will be able to do that as overbought as the market is.  Volume has dropped way off this week as many investors have decided to sit tight.  That should only be a problem if a sell catalyst comes along.  Breadth was +61%.  New highs picked up to 188.  New lows were steady at 21.

The futures tried to launch off the 20 SMA again, but failed to make new high ground.  Obvious resistance in this area.  Will they overcome it or not?

While some of the pundits claim Dow 20000 is just a number it may turn out to be very important.  Dow 10000 was first hit in 1999 and the Dow was still toying with it in 2010.  It has had a history of some round numbers (1000 basically held for 16 years) being trouble.  With valuations where they are it seems quite possible we could be talking about 20000 for many years to come.  They were really disappointed at the NYSE we did not get there today.  Maybe tomorrow.  I can't wait to get it over with so I don't have to hear about it anymore.  Just be aware it could be a tough level to stay above for any length of time.

Wall Street is really pounding the table on financial stocks.  They parade people constantly on TV talking about them.  At the lunch time round table about the only thing they could agree on was the financial stocks would continue higher.  I have been trying to recall any sector I have heard this much agreement on the upside on.  The only thing I could come up with was the dot coms in 2000.  It was a given that the new paradigm would drive those stocks to the moon.  Well we know what happened don't we.  The Wall Street firms were hyping the stocks on TV while their trading desks were busy selling them.  I am starting to wonder if this is what is going with the financials.  They say they have to go up as long as rates are going up.  However, anybody remember 2007.  Rates were rising then, but it was not a particularly good time to buy financial stocks.  Maybe this time is different, but over hyping rarely is a good time to buy. 

I previously mentioned GM announced some layoffs while cutting back on 3rd shifts.  Here is an article about even more layoffs to happen (10000 now).  “Car Recession” Bites GM: Inventory Glut, Layoffs, Plant Shutdowns  What caught my eye was this chart.

Notice how the inventory started spiking up after July.  Remember the industrial chart I showed recently with a peak last July.

That also happens to be the month the U.S. ten year rate bottomed.

Is this just a coincidence?  Rising rates is the number one cause of recessions in the U.S.  While a lot of auto production takes place outside the U.S. the industry still is important to the economy.  Layoffs will not help.  Idling plants will put further downward pressure on industrial production.  Many times layoffs in the auto industry have been the final straw that put the U.S. into a recession.  While the pundits are busy talking about rapid growth next year the reality is we still need to worry about a recession happening instead.  It has puzzled me for many months how the leading economic indicators sky rocketed off their Feb. lows, but the economy has basically trudged along.  For a long time I was expecting to see a real pickup in strength and it just has not happened.  Instead, we are seeing signs that what strength we had in the spring has been fading since July.  What is going on?


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