Dow 20000 denied again. It got within 20 points and stopped.
The volume suggests many investors were still out of the office. The market shot up a few points from the open in the first 20 minutes and stopped. The breadth peaked at 10:10 at +70%, but ended at +59%. New highs increased a bit to 138. New lows were stable once again at 20. The bulls showed up for the famed Santa rally. Will they show up again tomorrow and get Dow 20000?
The futures hit the upper channel line this morning and stopped. Still in consolidation mode.
The green count remains below 50.
The consolidation continues. While many view this as a positive that is not always the case. This bull market has seen a number of sideways patterns like this end up breaking down instead of up. Just look at last Aug. for an example. Art Cashin was talking about some pension funds needing to re-balance their equity/bond ratio because of the sell off in bonds and rally in stocks. He mentioned there could be $35 billion of stocks to sell before the end of the year. I am surprised they would wait that long. Who do they think they are going to sell the stock to at the end of this year? Remember the "why buy now theory". The sideways price pattern suggests people are waiting until Jan. to harvest gains from this rally. Who is going to buy all that stock this week if there will be more selling next week that could easily produce a better entry point? Art looked a bit concerned when he talked about it. I can see why if there really is that much stock to sell. It could make for some volatility I guess.
Last week I posted some charts wondering if there was some kind of inflection point last July. Here is further evidence the U.S. economy is slowing.
Red Flag on Recession Crops up in NY Fed’s Coincident Economic Index
I don't see any false indications of recession in the last 25 years. This is clearly the first time this index has gone down since turning up in late 2009. Here is a closer look at the last few months.
The index peaked in Aug. and has now fallen for three months. The long term chart shows this index pretty close to being coincident with U.S. recessions.
It is always difficult to detect the start of a recession. That is why the NBER often waits until a year later to say a recession started. Last spring I issued a recession warning, but I did not
think we were in recession yet. A few months ago I stated I could not
say whether we were in recession or not. The current data does not look like we are in recession, but is so weak downward revisions could change that. There is a very big and growing divergence between leading economic indicators and actual economic performance. The leading indicators have stock and commodity market prices in them. Real economic data obviously does not. I can't say for sure, but I think it is possible the market component is at least partially responsible for the divergence. What I can see in the data is that the U.S. economy started slowing in early 2015. It picked up a bit in the spring, but since July may have started slowing again. What is more concerning is that the pick up in rates since July (in percentage terms a historical move up) has not had time to work all the way through the economy yet. We are seeing a slow down in auto sales, and some signs of a potential slow down in the housing market. That could end up being enough to put us into recession. We also can't be sure rates have stopped going up yet. There is a pause going on, but no sign of a turn down in rates yet. While survey data is all positive the more reliable real time economic data says otherwise. High stock valuations and recessions do not get along very well. The average SPX draw down in a recession is 38%. With the super high valuations we have today a much larger draw down is possible.
I feel very strongly we need to be very vigilant about a U.S. recession in 2017. The market is discounting a future that might not happen. I will keep watching for signs we are getting stronger or falling off a cliff. One of those scenarios seems likely to happen.
Bob
No comments:
Post a Comment