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Wednesday, February 22, 2017

Daily update 2/22

A sleepy day.

It was an inside day on SPX.  Breadth was -54%.  New highs slipped down to 197.  More notable was the decline in the transports and small caps.  Quite a bit of relative weakness there.  They have both been lagging SPX a bit since back in Dec.  Especially the transports.

The futures are kind of sliding up the upper channel line.  Until they fall back in there is not really much to say.

The green count slipped a bit today, but remains plenty strong.  It is looking like we have passed the peak momentum for this leg up.  The price peak is a different question though.

The long term lines are showing a lower peak.  This leg up since the election is not particularly strong in either the intermediate or long term lines.  While there has not been any noticeable selling pressure these lines are weak enough it would not take much to turn them red.  Until a sell catalyst comes along that is not likely to happen though.

This is a look at the XOI index.  While oil has been trading sideways in the 50s this index has been weakening.  Past history shows that most of the time when XOI and oil diverge it is the direction of XOI that is usually most correct.  The COT data shows the commercial hedgers have the largest short oil futures position ever.  The position has eclipsed the short position from mid 2014 just before the initial oil price collapse.  Recently I was reading about record gasoline inventories.  This looks to me that some time this year there is likely to be another oil price decline and it could be significant.  How much that might affect SPX is hard to say.  There were times in the past when it would trade down with oil, but overall SPX is at highs and oil is far from it.

Whenever the market looks a little tired along comes another thrust day up. 

I was thinking of this quote from John Hussman last night when I was writing the blog, but did not have the time to find it. A reader (tnx sunny) located it for me. "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak."  Very true.

Here is a look at the financial conditions index for the U.S.

The index is barely above 0 even with the stock market flying high.  While the market is acting like it did in 2013 notice the difference in the economic conditions in that year.  The dip into negative territory that was during the so called "taper tantrum".  Most of that year the index was well higher then we are seeing now.  This makes sense to me as we know defaults are rising and credit is tightening.  The stock market is a good part of this index.  Imagine what it would look like if the market was tanking instead of at new highs.  The European stock markets are also doing well how do things look over there.

Things in Europe are similar to what we have in the states.  Maybe just a tad weaker.  Certainly not screaming all is well is it.

It is clear to me that things are not as rosy at the moment as global stock markets would have us believe.  The real question though is will the economy catch up or not.  Only time will tell.  For now there is still the risk of recession.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.