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Friday, December 9, 2016

Daily update 12/9 Credit conditions tightening

Runaway mode continued in SPX today, but breadth weakened.

To the moon.  Sometimes the market gets an agenda and will not be detoured.  The Dow is less then 250 points from 20,000 and I have to wonder if it has an agenda to get there.  That won't take long at the rate we are going.  The breadth was slightly negative today.  That is a change from what we have been seeing.  New highs were considerably lower at 327.  New lows came in at 23 which once again is a bit elevated with indexes at new highs.  The buying enthusiasm waned a bit today.  The futures don't really add anything tonight so I am skipping ahead.

The green count reached overbought levels today.  This is the highest it has been since way back in July.  Now we are technically overbought as well as extended in price.

The dollar index spent 4 days testing the 100 level from above and rebounded sharply yesterday.  There was some upside follow through today.  This looks like a good test of the break out above 100 to me.  I expect further gains with an eventual upside target around 120.  Right now the market seems to be ignoring everything, but it may get around to noticing this eventually.  I have talked about the huge amount of dollar denominated foreign debt.  The dollar rising makes those loans more expensive to pay back and is therefore a tightening of credit.

The LIBOR rate has been rising for almost two years now.  Over the summer I read the excuse given was money managers preparing for the FED's new money market rules.  Well those rules were implemented back in Oct. and yet LIBOR is still rising. There is many trillions of dollars indexed to LIBOR rates so this is tightening credit conditions.

I showed the U.S. Bloomberg financial conditions index the other day and noted that it had been negative a long time.  This is the European version of the index.  As you can see it has also been negative a long time.  Something isn't quite right.

I can't believe how many times I have read or heard the phrase "animal spirits".  All I can think about is how many times in 2000 I heard the phrase "the new paradigm".  The top in 2007 didn't really have a catch phrase that I can recall.  The other thing I keep hearing about is the retail investor buying in since the election.  Let me get this straight.  We have retail money flooding into the market, a really cool catch phrase, and a questionable technical and economic backdrop.  Perfect ingredients for "the top".  The only question is how much further and how much longer it runs.  You are witnessing an amazing run.  I have the feeling years from now people will be asking how in the world did we not realize that was a major top.  What I don't know is if we are days, weeks or months away from the final high.


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