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Wednesday, May 16, 2018

Daliy update 5/16

Bulls strike back.

The market gapped up and bulls kept the bears at bay until a late afternoon dip.  However, the dip buyers came in once again to push the market up a bit into the close.  Breadth was +61%.  New highs increased considerably to 121.  New lows dropped to 56.  SPX may have kissed the trendline good bye.  It needs to close above that red resistance line to confirm.

The futures bounced off the 20 SMA.  So far so good. 

The green count turned up nicely and made a new rally high.  It remains a bit below overbought levels.

The number of SPX stocks above their 200 MAs has still not made it above the April high as SPX itself has done.  This is a negative divergence, but is only a problem if SPX rolls over around here.  If SPX keeps heading higher this indicator should eventually confirm.

I chuckled today when I looked up at CNBC and saw a headline asking if rising rates and a rising dollar could derail the rally.  I posed that very question in yesterday's blog in case you missed it.  We know from recent history that a rising dollar tends to act as tightening to the global economy.  We also know that there is some magical level interest rates get up to that will definitely cause a recession.  The problem is that key level changes over time.  There is no doubt that if the dollar and/or rates go high enough they will kill the bull market and cause a recession.  Unfortunately nobody knows what levels would do that or when we will reach them.  Based on the FED's past history odds are high they will keep raising rates until they cause a recession.  The so called soft landings are very rare.  On the global economic front we had some interesting news out of Japan.

Japan's economy contracted more than expected at the start of this year, breaking the longest run of growth seen for decades, in a blow to Prime Minister Shinzo Abe's reflationary 'Abenomics' polices. 

Wednesday's data marked the end to eight straight quarters of economic expansion, which was the longest sequence of growth since a 12-quarter run between April-June 1986 and January-March 1989 during the asset-inflated bubble economy. 

The economy shrank by 0.6 percent on an annualized basis, a much more severe contraction than the median estimate for an annualized 0.2 percent.
Fourth quarter growth was revised to an annualized 0.6 percent, down from the 1.6 percent estimated earlier. 

There has also been some soft data from S. Korea, but that is not unusual post Olympics.  So far the U.S. is still plugging along.

The bulls held off the bears and are still in control.  R2000 closed at a new high.  That is a positive as long as it stays out there.  It didn't make it by much so that remains to be seen.  


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