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Friday, January 3, 2020

Update 1/3

A little selling today on geopolitics. 

That is quite the straight up move from Oct.  It feels like a lot of FOMO going on.  I am not sure what it is people think they might be missing out on.  The global economy is clearly the weakest it has been since 2009.  There have been a lot of upside gaps and a few remain open.  That kind of move often gets completely retraced eventually.

The futures tested the 50 SMA overnight and bounced.  They ended the day at the 20 SMA. 

This chart is the reason for this update.  The red count crossed above the green line.  This is the second cross since the Oct. low.  The last negative cross was a bounce cross leading to more upside.  There was a clear lack of selling going into year end.  There is bound to be some profit taking early this year.  The question is when.  I would think the odds of a true pullback would be higher this time with the calendar change.  The bears need to see downside follow through.

The global economy has not shown any signs of picking up steam yet.  The U.S. ISM manufacturing number came in at 47.2 today which is the lowest since 2009.  A reading of 45 would greatly increase the odds a recession is imminent.  Don't forget BA announced they were shutting down production on the Max in Q1.  That will not help the ISM data.  I have not seen a tick accumulation signal since last July.  That indicates this rally has been largely driven by retail investors.  We have had a big rally while the economy is the weakest it has been since 2009.  Something has to give.  Either the economy will turn around or the market is likely to sell off.  The conference board's CEO survey says the number one worry of CEOs is a recession.  I am sure they know a lot more about the economy than the pundits in the media that proclaim there is no worry.  The pundits seem to have forgotten the inverted yield curve we had last year.  I am not sure the economy has the strength to withstand a 15-20% sell off in the market and avoid a recession like we did in 2018.  We could see the bull market top this year so this is no time to fall asleep at the wheel.


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