Thursday update

SHORT TERM: gap down opening but rebound, DOW -5

Overnight the Asian markets gained 0.4%. Europe opened higher and gained 0.5%. US index futures were lower overnight. At 8:30 Q2 GDP was reported higher:+2.3% v -0.2%, and weekly Jobless claims were higher: 267k v 255k. The market gapped down at the open to SPX 2104, and continued down to the low for the day at SPX 2095 by 10am. After that the market rallied to SPX 2103 by 10:30, dipped to 2097 by 11am, and then rallied to close the gap in the afternoon. Heading into the close the SPX hit 2110, then dipped to end the day unchanged at 2109.

For the day the SPX/DOW were mixed, and the NDX/NAZ were +0.35%. Bonds gained 1 tick, Crude lost 30 cents, Gold dropped $9, and the USD was higher. Medium term support remains at the 2085 and 2070 pivots, with resistance at the 2131 and 2198 pivots. Tomorrow: the Chicago PMI and Consumer sentiment around 10am.

The market gapped down at the open today, second time this week, dropped to SPX 2095, then reversed and closed the gap. Today’s decline was the first notable reversal since the rally began on Monday from SPX 2064: 2111-2095-2110. Not much to go on there so far. Yesterday’s short term negative divergence worked out fine. Yet if the market can make it back to SPX 2111 the RSI could set up even a larger divergence. Only one of the three levels noted over the weekend (2074, 2044, and 1981) have been broken this week. So probabilities for a Primary IV decline remain at 50/50. Short term support is now at SPX 2095 and the 2085 pivot, with resistance at SPX 2111 and the 2131 pivot. Short term momentum ended the day just below overbought. Best to your trading!

MEDIUM TERM: uptrend holding above SPX 2100

LONG TERM: bull market


About tony caldaro

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169 Responses to Thursday update

  1. Alert for a possible double bottom on the DOW JONES.
    graphic on the link below

  2. kvilia says:

    Have a good weekend all! Hopefully after a small pullback the markets will pull it together (sorry) and break up.
    Enjoy your bbq and a splash of something refreshing😉, after hitting a gym of course.

  3. fishonhook says:

    This market makes you feel like a fool and a genius one hour apart.

    Uncle what did you see that sent you short into the week-end

  4. With Greece mkt re-opening monday, it would not surprise me if ECB started bullish jawboning over the weekend (read Mountain of cash for backstop) to “soften the blow”. Hugh gap up monday ? just sayin’ .

  5. What does yesterday’s hanging man (aka hammer) and today’s potential doji candle have in common with the following;

  6. reddragonleo says:

    Every Friday Do This…

    1. Turn of monitors.
    2. Head to nearest pub.
    3. Enjoy several adult beverages.
    4. Look a pretty girls.
    5. Forget about this weeks trades as there’s always next week.

  7. mjtplayer says:

    VIX low today at 11.82, which is very close to the low of 11.71 two weeks ago, potential bullish “tweezer” pattern in the VIX. See you at VIX 17+ in the next week or 2.

    • Many sentiment indicators do not agree, see you at vix 9.0

      • rc1269 says:

        i think the equity market is almost structurally incapable of getting to a VIX of 9. 9.39 was the all time low, in 2006. but great insights from The Donald are always appreciated, thanks

      • mjtplayer says:

        Agree with RC, the last time the VIX traded in the 9’s was Feb 2007. In fact, it’s only traded in the 10’s once since then – 8.5 years. However, the VIX has bottomed in the 11’s (like today and 2 weeks ago) or in the low 12’s and subsequently rallied at least 25% on 31 different occasions since Feb 2007.

        33 occurrences since Feb 2007, 31 of them bottomed in the VIX 11’s or low 12’s, only 1 bottoming in the 10’s and 1 bottoming in the 9’s. This gives you a 6% chance of the VIX dropping into the 10’s or lower and a 3% chance of the VIX dropping into the 9’s.

        I like my chances, see you at VIX 17+ over the next week or 2.

        • zepfan123 says:

          Well we’ve seen the VIX run up to about 20.00 area several times the last few years when we’ve had good multi day pullbacks,like the market drop we got back in Oct 2014 to SPX 1820 for example taking it over 20 real quick…so if we drop good again doubt VIX 17.00 will happen. Just a drop back to SPX 2040 in the next week or two would probably get it to 17 or higher easy. At VIX 12.40(ish) wouldn’t take much.

          • NEWBIE says:

            The big drop is going to come from up here most likely overnight with no warning and the masses will be trapped and vix will shoot to the moon. This will be no coincidence its all preplanned an coordinated by the big boys.

        • Mjt / Zep. I tip my hat to your knowledge of Vix, You both make it sound easy just to buy very confidently at current levels and sit back and wait, but can the market really make a price on a financial instrument,with such high odds of success.

  8. ABchart says:

    Finally the Greek authorities confirmed that the Athens Stock Exchange will open Monday. They requested the assistance of the ECB.

    • mjtplayer says:

      Greece has been trading this whole time via the Greece ETF: GREK

      This ETF just made fresh 3yr lows on Monday and is very close to testing the 2012 lows. I’ve said it before, I’ll say it again, don’t buy Greece until they go bankrupt. Every bailout program implemented just delays the inevitable, but in the process further destroys the Greek economy through higher and higher taxes, more regulations and an overall feeling of hopelessness. Until they go bankrupt, wipe the slate clean and start over; Greece continues lower. It’s sad, but those are the consequences of poor decision making by politicians…

      • ABchart says:

        Thanks MJT.
        I do not touch the Greek stock market, but I look at the situation there because it influences th trend of the banks in particular (15% of the CAC). I read few days ago that Greek banks needs about 17 billion to reopen.
        I think the ATHEX will drop about 30% in the coming days even if ECB support in the early days. Lack of confidence.

  9. zepfan123 says:

    So the bait & switch sideways action continues.-Guess we’re all just going to have to keep guessing when the next real breakout happens. Right now I don’t feel like it’s going to be in August.- October maybe ?

  10. uncle10 says:

    Going home short the market this weekend. I’m waiting for Lee to chime in with a cheap short comment before I go all in😉
    good weekend all.

  11. kvilia says:

    Are you still thinking this bounce is corrective? No shift from 50/50? What numbers below or above will it change?
    Thank you,

  12. NEWBIE says:

    Its crazy to think so many know the final result but still get on the ride anyway.

  13. reddragonleo says:

    Anyone have a sentiment trade chart for the month of August?

  14. Tony ,
    Any change here ???
    $GTX is down 17% from this report and your dollar forecast would make this impossible.

  15. llerias7 says:

    Humm…smells an ATH is coming…Int.III powering ahead!
    (P.S.:I know it does not make sense but it what it is!)

    • excellent chart and annotation. closing out longs here and going short via SQQQ. VIX is sitting on 12 (see Fiona’s post earlier this week) while markets display tremendous buoyancy…window dressing? Next week is a new month, payrolls, etc. Without a retest of the highs, I’m now in the P4 camp until the Fed either backpeddles on a rate increase this year or we get an explosive bounce off of 2,019. Too much has been written about technical deterioration for me to stay long going into a weekend/new month. GL all.

      • Wanted to get your insight into the SQQQ. I was wondering what your thinking was in shorting the techs which is the index with the strongest relative strength, rather than shorting the SPX ?

        • I just use the S&P as litmus for all markets but as you point out, the NASDAQ has been strongest on a relative basis, thus it’s up furthest on the year. When markets rollover, as I suspect they are in the process of doing, into Primary IV then I expect the NASDAQ to outpace the other indices on the way down. It’s been widely noted that only a handful of stocks have propelled the NASDAQ to current levels, masking the underlying technical and fundamental weakness in that Index.

      • Except first of the month is pension buying day.Usually up.After that I agree.

        • FO Bella…do you have stats on first trading day probabiliities?

          • Maybe even just for August? Thanks…if you see this.

          • Sorry no. Susan in Connecticut has been pointing out the past year how many new-month/new-money days were rolling over from early spikes, but I’ve got nothing.

            This will be the first pre-NFP week in 8 months to end positive above 2080 here, which would often include the first of the month unless its in the NFP week.

            Only five of the past 12 NFP weeks have been down, and none of them were after an pre-NFP week as this one appears to be.

            I’m left with the Bradley extreme high last Monday, which is still the best pattern I’ve got since 2013 began once its rolled back through the extreme level to the other side. That says lower low to me next week, and I’m gonna be ticked if its not because it will be the first since 2013 that doesn’t.

      • fionamargaret says:

        ..the tail end of the bounce from 2064 which I suggested, has not completed yet….but not much left…

        • Actually I checked it out and August 1st is down 53% of the time and the first THREE days of August are down.I guess I just like seeing Bellas take on this stuff.Good luck all.

  16. fishonhook says:

    My RUT short on the close yesterday not looking like such a great move now. getting close to my mental stop – or I may add🙂

    • kvilia says:

      The move from 6/24 is looking more and more as corrective, I believe we are in wave 1 right now. Look at my chart, first resistance is already broken: We may get to 1270 before having a pullback to 1240, then there could be an explosive move up. I am half invested and waiting for the resolution here to add on to long RUT.

  17. rc1269 says:

    From Paul Singer’s recent letter:
    “To those who believe a crisis is nowhere on the visible horizon, we say the following: nearly every economic and financial metric is worse than it was pre-2008.”

    • NEWBIE says:

      The exception is the guys making $40+ an hour flipping this sign around.

      • torehund says:

        His position is tempting..nah bots will replace him🙂

      • zepfan123 says:

        Really ? $40 + bucks an hour for holding those caution signs ? What do the guys in Caterpillars moving dirt and concrete right next to them make an hour ? $100 + an hour ?

        • lolomatador says:

          In the Chicagoland area yes it’s around $36-40/hr for a flagger. The michine operators are around $45-55/hr

          • zepfan123 says:

            Thanks. Who knew ? Based on what the “flaggers” are doing and what the machine operators are doing..I’d say they are getting underpaid. Running a bulldozer well looks like a pretty highly skilled position to me.

  18. zepfan123 says:

    Still too many divergences here to get cocky confident about predicting a good sized near term move down on the SPX. The big drop on XOM is the main reason the DJIA is in the red but the SPX is relatively strong staying close to the’unchanged’ level. COMP and RUT green so I bet we don’t get very far either way here. Gonna be hard to get out of the SPX 2090/2110 box with “this” look.

  19. kvilia says:

    Need help. 3x leveraged ETFs vs. 2x. Looking at UWM vs. URTY. Any experience? Short swing trades (1-4 weeks) intended.
    So far I had really good experience with DXRLX/DXRSX pair. Having a bit more flexibility now in another account, so looking at something other than mutual fund etfs.
    If you have any experience with Russel or SPX 2x or 3x ETFs, please share – very much appreciated.

    • reddragonleo says:

      They are all designed to go down over time so I wouldn’t play them on the long side unless it’s for a day trader only. I’d short them only (if you can borrow shares). I’ve tried the short them via put options in a spread but the bid/ask gets too wide when I want to make the trade and it’s not worth the risk/reward. So I just don’t trade them at all for swing trades as I haven’t figured out a way to successfully play them where the odds are in my favor and not the market makers.

      • kvilia says:

        Thanks, Red. Not sure what you mean by shorting them all. I made 17% during the past 12 months buying DRXLX and DXRSX 2xETFs and holding them from several days to several weeks. The decay is there but for 2xETFs its minimal. I have not used URTY/SRTY but actually saw some positive experience about UPRO. Again, as long as decay does not get in a way as for example in the case with UVXY.

        • JD C. says:

          Kvilia, SSO and UPRO are just fine. Volumes usually good, bid/ask spreads usually good except for pre/post market hours. Easy to hedge with SDS/SPXU also. I stick with dividend etf’s, SSO, UPRO, and SPY calls. QLD and TQQQ sometimes. I don’t like tracking small caps.

  20. Tony, I’m seeing some different short term counts being discussed. I wanted to get your take on whether you think the 2064 low on Monday was a truncated leg of the previous move down or a 2nd wave of the move up?

    • tony caldaro says:

      Monday’s low had nothing at all to down with the previous downtrend.
      The previous rally and the rally that followed 2064 still look corrective.

  21. blackjak100 says:

    The new high at 2114 at least guarantees an impulse from 2063.5. The question is ‘is this a wave 4 expanded flat or a wave 2 correction?’ Either way should see 2085 pivot tested yet again.

  22. At this point I would say we are in a 1-2 I-II and now in III starting to fraction as well and we will see new high.

  23. Amazing the 10 yr down to 2.19%.A booming economy? Fiona mentioned a whiff of deflation but deflation affects not only bonds , gold, commodities and currencies…Economics 101 says it affects stocks as well.Is this the canary? I m really stunned at this move even though I m 30% in bonds…and gold testing $1100 again.COULD have a chance at a big short covering day in gold IF we can bust through 1100 early.Good luck all.

    • NEWBIE says:

      Canary has been making noises for a while the system is on the brink of collapse and all you hear is people making excuses. 2008 was the warning shot Next comes the implosion. Those with the most gold/silver/ guns/ food and land wins.

    • Gold slip slidin away…another chance lost…someone in total control.

  24. rc1269 says:

    As Tony alluded to below, that bad ECI reading (lowest in 33 years) will just add more fuel to the fire that the Fed will not be raising rates in Sept, if at all this year

  25. kvilia says:

    Bears vs. bulls, what’s new.
    Two areas of immediate danger for RUT. If taken out, significant advancement will be achieved. I am thinking anywhere between 10-15% using leveraged ETF. Let’s clear those areas first. Staying invested with a small profit so far.

  26. mjtplayer says:

    Nice 10pt ramp in the SPX futures over the past hour on no news. SPX set to open 3 – 4pts higher, which should make an incremental HH over the Wed high – can you say window dressing.

    As a bear, that’s great. Making a potential high, on a Friday in July, with zero volume, on the last day of the month (window dressing) on a rare blue moon – a perfect spot and timing for a top.

  27. Gary Lewis says:

    Without a big market drop today, I concede that the failed three month test of the high that occurred in May proves not to be a successful sell signal. While June was down, July and August should follow. Doesn’t appear likely at this point. None of the patterns and tools that I’ve used successfully in the past are effective anymore. I know that the market will correct eventually. But it just doesn’t appear that it will happen in my lifetime.

  28. GYN LAB says:

    Good morning!
    With .618 at 2107 busted, last hope for the bears at .786 and Feb high (2118)

  29. IMHO the stock market is poised to drop from this level. Fear is very scarce. Individuals and institutions are buying the dips and making money. However, that.s a risky game. Today we sold off in the morning and ended even, but it took us all day to recover the loss. This is a sign of weakness. Markets need mullah, mojo or money to continue climbing. Markets have more to gain by going down at this point and generating fear that will cause talk of raising rates to cease and holders of stocks to let go at lower prices. Time to raise cash.

  30. Here s my contribution for the day.As I ve said…except for early July, when we dropped below the 50d it took no longer than 5 days to get above it again…the new news is once we go above it..the standard time to hit its peak is 5 days after crossing the 50.This is the second day so at most and most likely we have turnaround Tuesday again….to the downside.The patterns have been there all year.August is also the second worst month behind September…Aug only up 55% of the time.Good luck all.

  31. probably nice buying opportunity coming soon on ES.

    However this week I keep watching the crazy stuff happening in CHINA. wow!

    That HUGE STOCK MARKET crash in CHINA, Still happening has wiped many people out. OUCH! its lured in many novice traders who have quit their jobs,

    and put all their lifesaving in the market hoping to make themselves rich, however things have gone terribly wrong for these investors recently as they do not know what they are doing!!

    Here is just one story! Absolutely heart breaking. This novice farmer investor has basically lost his entire lifesaving’s and also his entire family fortune as well. Watch the video here ==>

    • Heartbreaking? Just shows that Greed and Fear is present in all cultures. Unfortunately it appears so easy but, just as in any endeavor, requires that you understand the rules of the game. Lesson learned.

      And anyone here claiming not to have endured losses at the start, except maybe frb and the three amigos, is not being honest.

      • Not funny Drew…..I have admitted my humiliation opening on here before….Like many I did near go bankrupt we I first started out actively trading. took me years to become a skillful trading and to recover from my devastating losses. I hope I never have to go through that humiliation ever again and do not wish it on anyone.

        • Okay, EL MATADOR. I don’t know your particular history (haven’t been here that long and don’t read everything posted) but the way you post leads me to believe you are an accomplished trader. Hopefully that’s the case. As I have learned the lessons the hard way (paid my dues as anyone else who is marginally successful), I tend to bristle when I see those making it appear so easy (which may mislead those less experienced).

          If TC feels my post was inappropriate, along with my reply, I would hope he would delete it as I don’t want to detract from the overall goal of his blog; sharing investing/market thoughts.

          • No biggy Drew, I had a feeling you meant it in good humor. You be surprise how many of us on here have openingly admitted getting taken to the woodshed during our infancy learning curve and from time to time when we have a careless trade. You know what they say,


          • Great EL MATADOR, after re-reading I can see how it could have been taken another way. Not my intent (and an example of not re-reading a post prior to hitting the button). Too many people take on this casino without being fully prepared. And they don’t realize the amount of time (and sacrifices) many have endured prior to achieving profitability. I wish you continued success.

          • fotis2 says:

            Most enter the trading game with a ”quick buck” mentality, soon this backfires big time and the understanding, that the Market, the Gurus, the countless trading blogs offering super duper systems ,your Broker, Zerohedge,Guttenburg,CNBC,Bloomberg and fellow posters don’t give a rat’s ass for you or your acc..sinks in.Been there got the T-shirt.Based on my limited trading experience I’d say most important:Start with sufficient capital and play small to outlast the learning curve.

    • perversionofthemean says:

      What I don’t understand is how the chart of FXI looks to some like a “crash”. To me, it’s still following a parabolic up trajectory and is for the most part lows-above-lows on the weekly. It’s actually faring better than the EEM’s of the world, which are sitting on the brink of destruction, matching lows of the last four years. If I attempt to count waves, it seems it is already in a new C wave down, and just pausing here. The chart looks quite similar to that of crude oil months ago, and is just lagging. China has the same shape, but is lagging even EEM. If these dominos topple, then EEM is a goner, and China will later be too. Not a forecast, just an observation. Also, I can’t count how many times such an obvious cliff like what EEM has has been breached, only to snap-back and roar higher after running stops… I wouldn’t bet on the reversal higher, because EEM is still relatively expensive compared to SPX on ratio charts. China is a part of EEM, and is effectively the leader in relative strength — for now.

  32. NEWBIE says:

    Tony, Any thoughts on the possibility of the Renminbi’s to getting special drawing rights later this year.

  33. Staying range bound for the remainder of the year would be ideal; sufficient profits within and would frustrate bears and bulls alike (as we see on the board here). Works perfectly for me and would easily allow +30% for the year. I know frb and a few others are “killing it” but I’ll take those measly returns year over year. 😉

  34. Chart is bearish but price action is bullish. Dictomy. That has a meaning on EW or any others techniques ??? Please help..

  35. mjtplayer says:

    401(K) contributions at a record high. This, along with record high margin debt and low levels of cash in brokerage acct’s (according to TD Ameritrade) and it all points to the retail investor being “all-in” the market. So, who’s the incremental new buyer now?

    • Mutual fund cash also at an all time low. See below. But from the Fed’d flow of funds, its been companies themselves who have been the only incremental buyer the past few years. That seems to have changed according to a recent Economist article saying actual buybacks (not just authorizations) were down year over year in the first quarter. For the buybacks, see this from the economist a few weeks ago: This is definitely not what we were being told in the spring!

      Jason Goepfert ‏@sentimentrader 2h2 hours ago
      It’s official – mutual funds are now holding the lowest amount of cash reserves in history.

    • I was thinking the question would be more like who’s the last standing buyer. Hint CB’s like China, Japan, ECB, etc. Well we got to previews of what happens when they stop the printing press …. HINT SNB currency flash crash and China indices flash crash…who’s flash crash is next hint…me thinking Japs

      • mjtplayer says:

        Agree, if Japan or the EU even hinted at cutting back on the printing, those markets would virtually collapse – just like China and the SNB peg

        • torehund says:

          Mjt- nations may be printing to own assets when inflation and stagflation appears. They don’t necessarily throw good printed money after bad..Even IMF is now putting further Greece money on hold, even though its mostly a bypass rescue going straight into the banks.
          Sure in Europe/middle East it may evolve into a human catastrophe, with widespread hunger and political turmoil. At such time of human suffering (which has already been raging in the middle east), a dentists hunting endeavors is medias way of marking the ultimate of “western world” pseudo inhumanity. Talk about hiding the head in the sand.
          The US might enter an inflationary cycle to, however Europe may face an inflationary depression. Its all hidden in the relative strength of the US, and the deflationary response to the recession of 07.

          • Tore, CB’s printing new mint $$ for the purpose of purchasing assets is the worst policy ever if they over play their hand which they all have. Why, because govts make the worst investors in world simply because they over stay their honeymoon policy buy and hold into the bubble zone hence becoming the last standing buyer which the rest of the smart money investors are glad to sold them their shares with open arms before the bubble pops. This is why govts should stay out of the equity markets. People always say that the market is always looking ahead…..BS….the market is always looking to overvalue and/or undervalue itself. Fair value is relatively non-existent.

          • Page says:

            Torehund, Take a look at picture, Indian passengers stand and hang onto a train as it departs from a station on the outskirts of New Delhi. The world population will grow significantly by 2050.

          • torehund says:

            Page agree that the regions with more favorable climate and poverty get more kids, here in the socialist west we are guaranteed that the government will take care of us when we get old (if the system survives, which is doubtful).
            Lots of Norwegians moved to the US early 1800. Cleng Peerson was first out leaving the now renowned oil capitol of Stavanger in 1821 for New York. Thats nearly a 200 year cycle, and as the oil is mostly gone it may just repeat itself.

          • torehund says:

            El Matador, maybe the government is thinking of its own survival, and not ours.

    • wildmick says:

      retail investor has been in for some time. as you stated, many are now “all-in”. good time for a correction.

  36. fotis2 says:

    So long it closes above 2044 tmrw that’s a valid 3bar weekly reversal expecting new highs in the coming week could be wrong, patterns do fail but that’s what I see on the charts.Sick to it for now till proven wrong.GL

  37. blackjak100 says:

    I don’t think 2095 ended wave 4 if it’s a wave 4 as it was too short in duration compared to wave 2. I expect a slightly lower low early tomorrow to end wave 4 if it’s a wave 4. Much below 2090 and I would think its not a wave 4. Gl and cheers!

    • stephenk1980 says:

      On the Dow the drop on the 28th looks identical to todays drop (the 30th). The SPX also looks identical if you start from the second slightly lower peak after it had been flatlining since late on the 29th. And anyway, aren’t waves 2 and 4 *supposed* to be often different?

      Anyway, just my observations. I’m expecting it to keep ramping up fairly quickly and so am a bull for the very short term. Expecting a peak next week sometime – probably 2nd half after all the dividends are paid.

      • blackjak100 says:

        guideline is wave 2 and wave 4 should alternate in structure, but they need to be in proportion (duration) as well. This gives it the ‘right look’. If my count is correct, wave 2 was a clear ZZ so looking for some type of flat in wave 4. Again…not a rule just a guideline.

  38. Page says:

    Thanks Tony.

  39. zepfan123 says:

    Hate these kind of days. Summer doldrums on steroids. Hard to say if we’re in a “calm before a storm ” period here. Be ya bearish or bullish..I’m sure we all hope it is.

  40. uncle10 says:

    Thanks Tony.
    Just ran some of my numbers. It looks like there is extra risk for this weekend.
    Lets see how we close tomorrow for confirmation.

  41. gtoptions says:

    Thanks Tony
    As El Matador pointed out the Hammer candle that failed to break yesterday’s high, it is also considered a tweezer reversal. There are several on the SPY chart, if you look left. We shall see.
    GL All

    • rc1269 says:

      similar setup and hammer candle on 7/22/11, right before the P2 selloff began. fwiw

      • klopharmd says:

        I hope it’s worth a lot.

      • RC, I always enjoy reading your insights, wish you posted more! Thank you.

      • tony caldaro says:

        I’m seeing bond traders shifting out of corporates into governments since mid-2014.
        Just like they did from mid-2010 to late 2011.
        Any take on this?

        • rc1269 says:

          yes sir, lots of takes on that one (given what i do i’d be in trouble if i didn’t!). the main things happening are:
          1. first and foremost, credit fundamentals are worsening and investors are becoming increasingly cautious. leverage is back at all time highs. good companies are destroying their balance sheets through leveraged share repos and m&a. and those are the strong companies. then there are the weaker companies who are deterioriating just through good ol’ fashioned worsening business prospects. namely, energy and commodities producers. that only leaves us with a sliver left of companies who aren’t either actively or inadvertantly destroying their balance sheet
          2. take the above in conjunction with the fact that, at least around june of last year, credit spreads were pretty much at post crisis lows. it took some time but investors did wise up a little to this and we’ve seen spreads gradually widening over the last year. rightly so, given the growing issues stated above. but outside of the energy and materials names credit is still not exactly ‘cheap’, at least in my view.
          3. third, supply has been immense. this of course is related to all the leveraged share buyback and m&a, but beyond the impact on balance sheets all that new debt has a technical impact on the market as well. when supply outstrips demand you get wider spreads. and while additional supply in and of itself doesn’t cause investors to move money from credit to treasuries, the expectation of wider spreads does.

          • tony caldaro says:

            thx RC
            Posted your response in our forum, in case they missed it.
            So corporate balance sheets are leveraging up while rates are low.
            All this is occurring while the USD is in a bull market (bad for earnings) and revenues are generally declining. Share buybacks and cost costing are what is holding up earnings, and dividends for that matter. Then we have a problem.
            When the USD resumes its bull market, after this multi-month pause, revenues are going to get even worse. Then when the FED raises rates, the cost to carry this corporate debt, unless at fixed rates, is going to rise as well. Certainly the Junk bond market will be hit first.
            Greenspan has stated, remember him =), bubbles do not generally impact the economy unless there is leverage. The 2000 tech crash had little impact on the economy. The 2008 real estate crash completely shut it down for a few days. Are we somewhere in between?

  42. fotis2 says:

    Thanks Tony

  43. NEWBIE says:

    Tony C, in your gut do you feel market is weak and about to correct (possibly Primary IV)? If so why, if not why? Thanks.

    • Newbie, Here’s a little love for you.

      The S&P 500 came within a whisker of a record high only 10 days ago.
      It remains within 2 percent of the all-time high reached in the middle of May.
      But the index is not telling the whole story. Underneath the surface some serious problems are lurking.
      “The S&P is disguising the bloodbath going on within,” wrote Roberto Friedlander of Brean Capital in a note Thursday morning. “So while the S&P is within a few percent of its 52-week high most of its members have already corrected i.e., dropped by more than 10 percent from their highs. … This divergence screams of a short-term peak.”
      More than half of the companies in the S&P 500 are off 10 percent from their respective 52-week highs

      • tommyboys says:

        Yes it was/is a short term peak. Many companies have already corrected and are ready to rock at new lower valuations. Gotta break out of the range first though and who knows when the grind will end…

      • timmy321 says:

        This is sign that market is heading higher. Market didn’t correct and plenty of stocks have already corrected so when these stocks start stabilizing then market has no where to go but up. One can put any kind of spin on these things based on one’s bias.

    • tony caldaro says:

      See lots of technical damage, and stocks being sold after good earnings reports.
      Those with not so good earnings reports, feels like these stocks are spiking on short covering: sell the rumor – buy the news.

  44. Thanks TC; a coin toss indeed, unless you ask the three amigos. 😉

    Let’s see, for bull leg to endure, should close above 2096.67 tomorrow. Minor adjustments after rookie hour.

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