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Tuesday, June 20, 2017

Daily update 6/20 Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains

About face.

The selling started right at the open.  SPX closed below yesterday's low.  Breadth was -69%.  That is unusually high the day after a thrust to a new high close in SPX.  New highs dropped way back to 117.  New lows shot up to 92.  That is an awful lot of lows one day off a new high.

It looks like the pattern of touching the upper channel line and retreating to the lower line is repeating.  The futures made it half way there today. 

The green count dropped considerably today, but is still above the red line.  It is really low for just one day off a new high.  There was just no juice in that move to a new high yesterday.

Both the short and intermediate lines are already negative.  The long term line is barely positive.  There has not been much buying or selling pressure since March.  That let the market float higher.  There does not appear to be much strength underneath should selling pressure pick up again.

This was a weak day.  There is no getting around it.  Small caps and transports were beneficiaries of the original break in the NASDAQ stocks.  Today they both showed relative weakness to SPX and COMPX.  So much for that rotation.  This looks like a short term top.  The key might be whether QQQ breaks down to new lows or not. 

Since March 1 nearly every market internal has weakened considerably while the market crawled higher.  The one exception has been the advance/decline line.  I find this a bit puzzling when I look at breadth with the McClellan summation index.

This index looks at breadth 19 and 39 day EMAs instead of day to day like the advance/decline line.  It has been negative since last Aug.  That is an extremely long time.  Going into the May 2015 top it had been negative since Dec. 2014.  That kept price in check for over a year.  This is more like 2000.  Going into the top in March 2000 the summation index had been negative since July 1999.  I have data going back to late 1986 and those are the only three times the index was negative for such a long period of time while SPX moved higher.  This period is longest of any of them.  It might be telling us another bear market is coming.  I can only guess why the advance/decline line is not showing a problem.  A lot of people are banking on that meaning there is no trouble on the horizon.  I have to wonder if it has something to do with the massive amount of money that is now in passive indexing.  Those funds have to buy all the underlying stocks as the money comes in.  There are just so many divergences I don't think it is safe to say nothing bad can happen.  History would suggest there could be trouble at some point.  I can't think of any time in history when individual investors did something en mass like this move to passive indexing that worked out well for them all. 

There are changes to the trend table.

I have seen some articles on the global credit impulse over the last couple of months.  The index itself does not have a lot of history to study.  However, when I was looking at the chart in Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains I noticed something I missed before.  The chart is a bit hard to read on the individual countries so I had mostly looked at the global index itself.  Check out the chart.

We all know the subprime problem in the U.S. is what brought down the global economy in 2008.  That can clearly be seen by the gray indicator on the chart.  We also know that China announced a huge stimulus plan that I have long thought was what pulled the global economy out of recession.  We can see that in the green line.  We can also see another big push up in the green line starting in 2014.  That might be what has been keeping the global economy going the last few years.  However, look at the green line now.  It is seriously diving unlike any time on the chart.  It is looking like the gray line in 2008.  China went on a huge debt binge since 2000 and I have long been worried that a serious problem could develop there.  This chart shows the risk in China is rising.  Whether it becomes a problem remains to be seen.  However, there have already been two flare ups (Aug. 2015, Jan. 2016).  If things flare up again over there it might be more serious this time.


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