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Wednesday, July 26, 2017

Daily update 7/26 The Greater Moderation

More nothing even with a FED announcement.

Another tiny range day that managed a slight new high close.  Breadth was dead even.  New highs dropped way down to 164.  New lows dropped again to 11.  At least the lows are getting back down where they should be.  The volume has been high the last two days.  The down volume today was about 50% higher then the up volume.  High volume and little price movement is suppose to be indicative of accumulation (at lows) and distribution (at highs).  Today increased the toppy look of the chart.

The futures remained in the channel today, but are still above the 20 SMA.  They have not had enough selling pressure to even poke through the MA yet.

The green count crept up again, but at new highs is not particularly strong.

SPX is starting to look like a slow creep up pattern may be starting.  That pattern often reverses sharply, but can continue on for days before the reversal happens.  We could easily have several more days of this.  The bulls have not been very anxious to buy with the VIX this low.  However, nobody has started selling yet. 

The FED had an interesting sentence in today's statement.

"The committee expects to begin implementing its balance sheet normalization program relatively soon," said the Fed statement.

Anybody care to define relatively soon?  Is that the next meeting, or maybe the one after that?  The stock market did not react much, but the Euro went flying up sending the dollar index lower again.  Clearly the currency markets were looking at the FED statement today as dovish.  The dollar has been falling all year against most all currencies.  This is one of the biggest and fastest moves down for the dollar index in the last 20 years.  Clearly the FED is expecting to start quantitative tightening while the ECB has made no sign it has any plans to do that yet.  In that scenario does it make sense for the dollar to keep falling?  Just saying.  At the beginning of the year the long dollar trade was extremely crowded.  I am sure that bullish sentiment problem has been taken care of.  I am sure the ECB cannot be happy with that rising Euro.  I would not be surprised to hear Draghi give a good dovish speech to try to talk it back down.  That might provide a catalyst for a reversal.  The falling dollar has definitely helped U.S. corporate revenues.  However, it is now approaching the bottom of its long trading range.  We do not seem to have the fundamental case for a massive break down.

This is a good read from a former FED insider.  The Greater Moderation


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