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Friday, April 28, 2017

Daily update 4/28 My confusion

Resistance winning so far.

The sellers showed up shortly after the open and sent SPX on a slow dribble to the down side most of the day.  SPX stabilized late in the day.  Breadth was -59%.  New highs dropped considerably to 162.  New lows have popped up a bit in the last two days with 29 of them today.  I would characterize today as a steady hitting of the bids.  No panic selling, just slow methodical taking of money off the table. 

The futures closed back inside the channel at the end of the day.  That usually means the accelerated up move has ended and we are starting a consolidation phase.  Most of the time the futures will contact the 20 SMA next.  They could pullback to it or wait for it to catch up.  Given the potential for a double top, breaking the 20 SMA could usher in some more selling. 

The green count caved in a bit today.  The bulls may be giving up here.

It is probably still possible the market pulls itself together and breaks out on the upside, but today's action did not look good.  I think my assertion last night that the bulls probably need a positive news event to get the market flying up again still holds.  A lot of companies have reported now and earnings are as good as expected.  However, that has not been enough to inspire buyers to push prices higher.  What will then?  The lack of inspiration may be related to politics.

In Daily update 3/20 Industrial production (iP) I wrote

"I am going to throw this out there even if it might sound a little crazy.  There are some things I don't understand.  The last move up in early Feb. came after DJT tweeted out they would have a phenomenal tax package in a few weeks.  A few weeks later we find out they can't do the tax package until they do the healthcare changes.  I have a bit of a hard time believing they did not already know they wanted to do healthcare first.  So why talk about the tax plan?  Then they throw out a healthcare plan that practically nobody seems to like.  They say it has no chance to pass the senate at this time.  Next DJT claims that BO spied on him, but there seems to be no evidence of that so far.  Why would you say such a thing if you did not have some reasonable proof.  Over the weekend the G20 meeting ended with the possibility of trade wars.  Does any of this makes sense?  Now put those same actions into a context of wanting to spark a sell off in the market.  They set the market up for disappointment with the tax plan, but that didn't work.  Knowing they want to do the healthcare before taxes they throw out a plan that is very unlikely to pass.  That didn't work either.  Get radical and let the president sound a little nutty.  So far that hasn't worked either.  Start speculation of global trade wars.  The market didn't seem to notice that today.  If the objective is to get the market to sell off we will see more crazy things come out of D.C.  If that is not the objective, then I have no idea what they are doing. "

Since that time the market has not tanked and the stuff coming out of this administration has clearly gotten more crazy.  The so called phenomenal tax plan that was way delayed was not even a plan when announced on Wed.  I sure hope my theory of a plan to send the market lower is correct.  The alternative is scary.

Some days I feel like my head is going to explode trying to understand exactly what is going on.  On one end of the spectrum we have strong leading economic indicators and survey data.  At the other end we have some things going on that appear to be very bad.  Retail stores are closing at a rate that would exceed the number of closures in 2008.  The last two months saw negative retail sales growth which certainly will not help that situation.  Late payments and defaults are rising across all types of loans including credit card debt.  Government tax receipts are negative year over year.  Restaurants are complaining about a big drop in foot traffic.  Last month auto sales were abysmal despite massive incentives.  Iron ore prices are crashing.  U.S. steel  recently said the steel market was terrible.  The transports have not only been lagging, but are actually below their 2014 high.  Those kinds of things are usually associated with recessions.  The Wall Street pundits are telling us every day how great the economy is doing.  I haven't seen anybody concerned about a recession in a long time.  And yet I can't find real hard economic data to back up the optimism.  I find this situation extremely confusing.  I can think of no comparable period in modern economic history like this.  Historically this long into an expansion a recession has higher odds of happening rather than a long term sustained upturn in the economy.  There are several instances of a multi month spurt that rolls over into a recession late in an economic expansion.  That is a possibility for what happens over the next several months.  To date the market has been totally oblivious to anything that might be perceived as bad news.  However, markets can turn on a dime.  I think vigilance is the key word.

More technology for country folks.

Have a great weekend.


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