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Tuesday, June 27, 2017

Daily update 6/27 Yellen: Banks 'very much stronger'; another financial crisis not likely 'in our lifetime'

Sellers showed up.

The market largely shook off the unexpected hawkish comments from Mario Draghi.  Early on it looked like more of the same rotation out of tech into everything else.  However, later in the day news broke that the senate put off a vote on the healthcare bill.  The selling started to pick up and went on into the close.  The breadth was -63%.  New highs dropped way down to 73.  News lows remained low at 12.  This was clearly about selling the high flyers.

The futures are testing the 6/15 low and are just a few points above the low of the month.  They are outside the lower channel.  Moving back into the channel tomorrow should indicate the sell off is over for the moment.  Notice this is the first time they have closed below the channel since mid May.  That was a one day sell off.  Given the weak technical position we have now the selling could last longer this time.

The red count crossed above 50, but is well below the oversold level.

QQQ closed below the 50 DMA on a surge in volume.  How dare people sell while they are having FANG week on CNBC.   It looks like a possible head and shoulders top developing.  If this turns out to be "the top" in tech CNBC's FANG week will live on in market lore a long time.

The VIX only got up to 11.31 so it has not hit the important 11.5 level yet.  I suspect any bounce from here will fall short of new highs in SPX.  As weak as the internals were at the highs it is possible a bigger pullback is setting up.  Frankly that QQQ chart looks a little scary to me considering the sentiment at this very moment in time.  I would not be surprised to see SPX make a new high next month, but I suspect QQQ is done for now.   Will the dip buyers show up tomorrow or will the sellers return?

Is the market starting to lose patience on the Trump agenda?  In Daily updpate 4/12 I wrote "Despite the post election rally seemingly built on the Trump agenda it is interesting none of the political mess has had much effect on the market.  I think it is very clear things are not going to happen any time soon."  Two months later and we are no closer to getting anything done.  How much longer will the market be patient? 

Yellen made some comments today I think she will live to regret.  I actually heard a guy on TV say we should be celebrating Yellen telling us we are unlikely to see another financial crisis in our lifetime.  If I had been the interviewer I would have asked him if he remembered when Bernanke said the subprime problem was contained.  If the next recession does not turn into a global financial crisis worse then the great recession I will be shocked and very pleasantly surprised.  I would even turn into a raging bull.  Imagine that.  While the major banks in the U.S. are in good financial shape the same cannot be said for many large banks in Europe.  China may turn out to be a problem as well, but we don't really know exactly what shape the banks are in there.  For the U.S. my concern is CRE.  Many smart real estate people say CRE is in a bubble.  Retailers are closing stores this year at a higher rate then they did in 2008.  Imagine what might happen in the next recession.  Much of that CRE debt is in the much smaller regional banks rather then the big ones.  I don't think they are in nearly as good of shape.  The subprime problem was miniscule compared to the CRE market.  On top of that we have many countries with debt/GDP ratios well above 100.  The global economy is weighed down by debt (which has increased by over 50% since 2009).  I expect a good chunk of that debt will implode in the next global recession.  I think we are heading for the worst times since the great depression.  I am calling it the great deleveraging.  I really hope I am wrong.


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