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Tuesday, October 1, 2019

Update 10/1 Risk of Recession Rising.

The manufacturing ISM number came in at 47.8 which was way lower than forecast and the lowest since June of 2009.  That 2009 reading was just as the U.S. was exiting the great recession.  Many of the manufacturing numbers from around the world were worse than last month.  The global economy continues to weaken and it appears it is dragging the U.S. down with it.

There was a tick distribution signal today.  Volume was also elevated.  SPX closed below the 50 SMA.  Breadth was -72%, but was +62% when the ISM number came out.  Quite a strong reversal. 

The futures show a confirmed break of the 50 SMA and closed below the 200.

Money managers were busy de-risking today and with good reason.  Unlike most of the headlines in recent weeks this one was fundamental.  My perception is that investors have been buying dips and holding on in hopes of a trade deal.  They have been comfortable doing that because the economic data was okay.  Now the risk is clearly rising with this low ISM number.  The global economy may already be in recession.  The question is how much more de-risking needs to get done in the short term.  It is too soon to tell if this will cause a sea change in investors minds or not, but it could.  Trade deal progress might be scrutinized much more now with the risk of holding stocks rising.   The upcoming trade talks are now really, really important.

This kind of news headline is hard to game out.  Many headline driven moves are retraced in the near future, but most headlines are not really and truly fundamental in the short term.  This headline is clearly a negative and there could be more selling.  We will see if the dip buyers continue to show the same enthusiasm as they have been or not.


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