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Wednesday, July 31, 2019

Update 7/31 Tyrannosaurus Debt: A “Deep Dive” Look at Debt and its Burden(s)

The FED cut rates .25 and stopped QT, but the market sold off anyway.  I am sure there was pent up selling because a lot of people did not want to sell before the cut happened.

SPX nearly made a new low for the month before it bounced.  There was a lot of volume today.  Breadth was -61%.  New highs were 310.  New lows were elevated again at 54.  SPX closed below the 20 SMA for the first time since early June.

The futures had quite a move down when Powell said this was not the start of a lengthy easing cycle.  Then there was a big bounce when he said there might be more cuts.  The futures are below the 100 SMA, but have not confirmed a break of the 20 or 50 MAs due to the rapid move.

The red count crossed above the red line, but is still below 50. 

I am sure today's flash move down ran a lot of stops, but it is not clear if it signals a change in the market.  We will have to see what transpires over the next few days.  It is not unusual to see the move after the FED announcement be completely retraced.  We are now moving into the Aug. to Oct. period which is rather famous for sizable sell offs.  It is a good time to be vigilant especially because we had weak internals the last few weeks.  Maybe the bulls will strike back tomorrow, there was a rate cut after all.

Interesting article on debt.  Tyrannosaurus Debt: A “Deep Dive” Look at Debt and its Burden(s)


Friday, July 26, 2019

Update 7/26

SPX limps higher.

The market gapped higher on earnings today and after some sideways trading for a couple of hours managed to push slowly higher.  Breadth was good at +65%.  New highs were good at 203.  New lows were oddly high at 83.  In a strong rally new lows should be under 10 with SPX at a new high especially after a gap up.  I do not know why the lows were so high, only that it is odd.

The futures consolidated around the prior resistance area of 3018, but mid day pushed higher.

Besides the number of new lows this chart gives us another oddity.  The green count is still below 50 and even slightly below where it was two days ago.  This new high must be pretty thin.  Will it broaden out or turn back down?

The breadth chart shows the 10 DMA lines barely have a positive cross.  The McClellan oscillator is barely positive also. 

I believe investors are largely all in waiting on the rate cut next week.  I can't imagine anybody wanted to sell before that event.  The question is will there be a sell the news reaction.  The market looks like it could use a pullback.

There was a lot of crowing about the better than expected GDP this morning.  I will remind readers that GDP is useless in real time as the average error according to CNBC is 1.3%.  The Conference Board's LEI had the biggest drop since 2016 this month.  Industrial production has been slipping all year.  We are not out of the woods with the economy yet.  It is possible the slowdown is accelerating, but I need a couple more months of data to see if that is the case.  The amount of bonds world wide trading with a negative interest rate jumped to a new high this week.  The financial world has literally gone insane.  That has happened before like 1929, but I think it is even more insane this time.  I cannot imagine there won't be a day of reckoning at some point.  The question is when.  People in the future will look back at this time period and wonder what the heck were those people thinking.  If this break out to new highs fails it would reopen the possibility that the price action since Jan. 2018 is all a huge top formation.  The weak sister indexes IYT, IWM, and XLF are still well below all time highs.  Downside risk remains elevated for now.

Have a great weekend.  Peace.


Friday, July 19, 2019

Update 7/19

Consolidation at the highs.

SPX stuck its head above 3000 at the open, but sold off immediately and stayed below it the rest of the day.  Breadth was -56%.  New highs were strong at 189.  New lows were unusually high at 64.  That is the third day in a row they have been 60 or above which is pretty odd this close to the highs.

The futures traded down about 8 points from the 4 PM close after hours.  They look like a potential head and shoulders top since the beginning of the month.  

The red count is above the green line, but is still below 50.

In economic news the LEI was reported this week as the biggest drop since Feb. 2016.  Here is what they said.

NEW YORK,July 18, 2019...The Conference Board Leading Economic Index®(LEI)for the U.S. declined 0.3 percent in June to 111.5 (2016= 100), following no change in May, and a 0.1percentincrease in April. “The US LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first time since late 2007,the yield spread made a small negative contribution. As the US economy enters its eleventh year of expansion, the longest in US history, the LEI suggests growth is likely to remain slow in the second half of the year.”

There is no sign of a turn up in economic growth in this second half so far.  The FED certainly has cover to cut rates by .25.  The economy may be starting to struggle now.  The global economy continues to be weak.

After the July opening pop the market has struggled.  It sideways for the month.  So far the selling has been muted.  The weak sister indexes (IYT, IWM, and XLF) are still well off their old highs.  Some stocks are doing very well after earnings and others are getting creamed.  I think this has put a bit of a damper on buying enthusiasm.  While SPX is consolidating so far this month that consolidation could turn into a top at some point.  The economic data over the next few months could influence the market more than it has since late 2015 and early 2016.  Downside risk remains until the economy turns back up strongly.  Something that might not happen anytime soon.

Have a great weekend.


Tuesday, July 16, 2019

Daily update 7/16

I see stiff resistance yesterday and today at the highs.

The volatility has really drained out of the market intraday.  That is often a sign of complacency.  Breadth has been negative two days in a row.  Volume was a little elevated today which is a bit of a caution flag in the short term.

The futures ran into a brick wall at 3018 yesterday and today.  They retreated a bit from that this afternoon.

The green count has remained below 50 for several days at the highs here.

The short term lines got a negative crossover today.  More importantly the long term lines have a braided pattern and are rather close to a negative crossover.   That indicates there has been some distribution going on for the last couple of months.  This is slightly weaker than what it was showing at the top last fall.  However, it is similar looking to the May-June period in 2017 which did not lead to any major downside.  The breadth of the market has weakened considerably and that sometimes leads to bigger corrections.  At this point, I would say this is a caution flag that I wanted everybody to be aware of.  This pattern can last for a long time, but it often takes positive news or a big sell off to get investors back into the mood to accumulate stocks again.  Everybody now knows the FED will cut rates at the end of this month so it is a bit curious to see the distribution going on.  That makes me wonder if this earnings season is going to reveal some kind of problem for the market.  I guess we will see as time goes on.

Brick wall resistance like I saw the last two days often needs at least a little pullback to gain enough energy to break through.  A positive news event can also do the trick of course, but those don't happen all that often.  I would not be surprised to see this 3000 level cause a problem for SPX for a few weeks.  There could be some back and forth action while the market decides what to do next.  I will let you know if any significant selling pressure comes into the market.


Friday, July 12, 2019

Update 7/12

SPX closes above 3000 for the first time.

SPX has trudged higher slowly.  There is an absence of any selling pressure.  However, internals are weakening somewhat.

The green count is below 50 and has been diverging for a while now.

The short term bull pressure chart is also showing a weakening of internals.

The divergences indicate the market is getting a little tired here.  Earnings season starts up next week.  With these divergences if some real selling pressure develops the market could pullback somewhat.  With a rate cut expected at the end of the month it seems unlikely that any pullback here would be all that big.  Who wants to sell in front of a rate cut?  I will let you know if any serious selling pressure comes in.

Have a great weekend.


Friday, July 5, 2019

Update 7/5

The market responded favorably to the G20 meeting last weekend. 

The market sold off early this morning on a warning from Samsung.  However, the dip buyers showed up to do their duty.  Most of the money managers were likely out of the office (notice the tiny volume today) so we will have to wait until next week to see if there is any fallout from the Samsung warning. 

The green count is once again in an overbought condition.

With earnings season about to kick off we will see if the trade war and weakening global economy is causing problems for companies.  With SPX at highs the question is will earnings be good enough to push the market higher.  Of the weak sister indexes, only XLF has eclipsed the April high.  IWM and IYT are still lagging badly.  It is still not clear to me this is some kind of major break out and months of upside are coming.  The economic data in general around the globe is still weakening.  I guess it will be up to what earnings season brings.  At the moment the bulls are clearly in control.

Have a great weekend.



The information in this blog is provided for educational purposes only and is not to be construed as investment advice.