If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Thursday, May 18, 2017

Daily update 5/18 Industrial Production (IP)

The bargain hunters came out as expected.

SPX crossed above the 50 SMA mid day, but failed to stay there.  Breadth was barely positive.  New highs dropped a bit more to 38.  New lows dropped a bit to 74.  SPX closed about 10 points off its high.  That indicates considerable selling into the bounce late in the day.

The futures rallied up to the red line and turned back.  That line was resistance that turned into support in May.  Now that it is broken it may have turned back into resistance. 

The counts didn't change much today.  However, the intermediate indicator is getting real close to the key 50 level.  Notice the prior crosses in July and Sept.  There are two ways this indicator works.  The quick crossover and back like in July is usually bullish.  The other way is a crossover that lingers like in Sept.  That indicates a more prolonged corrective move usually leading to a lower low.  This being an intermediate indicator it lags price.  The magnitude of the move down in many stocks yesterday will most likely take this indicator below 50 even if the market keeps rallying from here.

We got the expected bounce today, but it looked like the dead cat kind.  It is important for the bulls to get SPX back above the 50 DMA.  Today's failure there was not a good sign.  After the Feb. low last year I commented a few times on what appeared to be a strong underlying bid to the market.  Today appeared to be more overhang of supply rather then an underlying bid.  That would be a serious change of character for the market if that continues.   While today had high odds of bringing out the bargain hunters tomorrow is not so easy.  The sell off in the afternoon might indicate the bulls have already run out of ammo.  However, it is not clear that is the case.  Since the bounce did not get very far the bargain hunters may come out and do some more nibbling.  Based on today's lack of enthusiasm it appears to me we are going lower eventually if not tomorrow.

IP took a big jump up last month.  This is definitely a positive, but there is one caveat that I know of.  About 40% of the increase came from the auto sector.  As I have reported in the blog the last two months saw abysmal auto sales.  Ford just announced layoffs.  I recently read that sales were down in China, Europe and the U.S. year over year.  This is the first time since 2009 all three areas were down at the same time.  In that scenario it seems odd that auto production was up so much.  I wonder if the data is even correct.  It also seems unlikely that increased auto production will continue given the lack of sales.  While the last several months have been positive for IP we are not out of the woods yet.  IP has never been off its high this long without the U.S. going into recession.  As I have noted before sometimes there is one last spurt of economic activity that rolls over into a recession.  I still can't rule that out.  With the soft economic data coming back to earth it is hard to say if IP will continue higher or not. 


No comments:


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