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Friday, October 27, 2017

Daily update 10/27 Don't Count on Ever-Growing Corporate Profit

I heard the words buying panic and euphoria mentioned on TV today.  The buying panic was certainly real.  Stocks, bonds, gold, oil, and the dollar were all up.  Flight to everything!  The only asset that did not go up today was cash.  That does not happen very often.

We had three volume days this week bigger then option expiration last week.  Usually expiration day is the biggest volume day of the month.  A big volume day at new highs always runs the risk of being a buying climax.  A close below today's low would signal that.  Breadth was +58%.  New highs were down a bit from yesterday at 175.  New lows remain extremely elevated for new highs.

As usual when the futures got below the 20 SMA, but failed to confirm a break in short order they rallied again.  They made a slight new high today, but closed exactly on the prior overnight high.

Curiously the green count slipped a bit today.  It remains below 50.  There is either a quadruple negative divergence or plenty of room to go on the upside before we get overbought.  Which will it be?

I am not sure exactly what to make of this situation.  There are plenty of things slightly out of kilter technically.  The high number of new lows is probably the most troubling.  I looked in the list and there is a lot of different sectors represented.  I can't rule out the possibility of an important top developing.  Sorry.  In the short term a close below today's low (2566) in the next several days would indicate today was probably a buying climax.  That could bring out a few sellers.

Interesting article from ECRI.  Don't Count on Ever-Growing Corporate Profit  The economy does not appear to be as strong as it was at the beginning of prior GRC downturns since 2009 to me.  With the FED in tightening mode it is hard to say what happens if the economy slows.  I think the elevated number of new lows could be an indication the economy could slow.  I will start keeping a closer eye on the economic data to see how it develops.  I realize the pundits are crowing about two quarters in a row of 3% growth, but the average error is 1.3% the first three estimates.  That is the average error.  Obviously it is off way more then that sometimes.  We won't know what the true value is for over a year.  That is why I say it is useless data in real time.  While ECRI had some trouble with the mid 2011 to late 2012 period their forecasts before and after that time have been very good.  They could very well be right again.

Have a great weekend.


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