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Wednesday, May 17, 2017

Daily update 5/17 Global credit impulse


SPX closed below the 50 SMA.  There is some volume for you.  Breadth was -78%.  New highs plummeted to 44.  New lows increased to 82.  It looks a lot like a possible double top forming there doesn't it.  I don't think it is any secret I have been surprised the market has not reacted to what has been going on in D.C. before now.  I guess they finally decided it might be time to take some money off the table.

The futures ended the day below the 200 SMA.  Notice the -DI line is above 35.  That opens the door to a bigger sell off.  It remains to be seen if the bears decide to step through that door this time.  They did not on the last signal back in March.  However, this time we have a very tired market.

The red line really shot up today and almost reached the oversold level.  Since the Feb. 2016 low there has been very little downside follow through to a spike of the red line.  Will it be different this time?

The bull pressure chart has negative crosses on all time frames.  Notice the long term lines never got a positive cross after the April low.  hat makes the market somewhat vulnerable.  However, that condition sometimes lasts for months before the market tumbles.

That 3/1 gap has always left me with a nagging feeling it was an exhaustion gap.  Market internals have deteriorated ever since.  The COMPX has continued to climb, but the advance has been built on a handful of stocks.  Meanwhile I get lectured every day on CNBC how this market can only go higher so every little dip is a buying op.  They were parading people today proclaiming that very thing.  It is really hard to find anybody even a little cautious.  Bob Pisani mentioned the transports being below their 2014 high, but nobody seems to be bothered by it.  Well I am very bothered by it.  I don't know exactly what is going to happen here.  However, I do know we have a technical and sentiment picture that could easily be THE top for this bull market.  I have commented a number of times on the difference between the soft and hard economic data.  In recent weeks the soft data seems to be crashing.  The transports lagging and the charts presented below have me worried about the global economy.  This is no time to be napping when it comes to long term index positions.  The pundits are constantly telling us how rosy things are.  It simply is not true.  There are a lot of things that could go wrong including a global recession. 

The usual response to a big down day coming off an all time high is for the market to bounce the next day.  The so called bargain hunters usually make an appearance.  If we get such a bounce I expect it to be short lived (1-2 days).  The market was clearly exhausted at the top.  Today did not generate any fear whatsoever from what I can tell.  I think there will be more downside to come.  A trip to the 200 DMA is overdue.

In this article (Why China Will Trigger Our Next Stock Market Selloff) I found this interesting chart.

I have to admit that global stocks definitely seem to struggle when China's credit impulse goes negative.  Seeing this chart made me google credit impulse and I came up with this article (PIMCO: China credit impulse decline sharper, more extreme - material drag on growth ) and chart.

That is a precipitous decline in the global credit impulse.  Clearly much lower then at any time in this recovery.  The only times it has been lower were 1999, 2001, 2008.  The U.S. did not go into recession until 2001 so the 1999 signal was early.  However, the U.S. economy was growing above 4% in 1999 and 2000 so it took a while to go into recession.  Last year the currently reported number is 1.6%.  It would not take long at all to fall into recession from such a low level.  The global economy is growing at a much slower rate then either 2000 or 2008.  In other words, it would not take as long for a global recession to happen as it did in those years.  Despite what the pundits say the global economy could be headed for trouble.  With stocks at extreme valuations a recession would not be good for the market. 


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