The Fed said they will remain “patient” and this is “consistent” with the policy of waiting a “considerable time” before raising rates. In the end, investors concluded that no change in rate-policy is coming soon; the markets immediately bounced up.
CPI (Briefing.com)
Consumer prices declined 0.3% in November after being unchanged in October. That was the biggest decline in the CPI since falling 0.8% in December 2008. The Briefing.com consensus expected the CPI to decline 0.1%....The entire decline in prices can be attributed to the energy sector.” Details at…
http://www.briefing.com/Investor/Calendars/Economic/Releases/cpi.htm
WHAT ARE THE ODDS OF A GLOBAL-LED FINANCIAL CRISIS (Naked Capitalism)
“…lets make some comparisons with the Global Financial Crisis. In late 2007, as US house prices were falling, debt markets began to shut for those that financed housing projects. The US Fed stood by expecting the housing market to clear without too much difficulty given sub-prime was a relatively small segment of the market. It considered sub-prime risks to be contained and, although it began cutting interest rates, risk was considered to have been healthily spread via derivatives.
What happened instead was that the risk had become opaque and filtered through to everyone and nobody, and as housing debt soured counter-parties to the debt began to wonder who held what. Trust progressively broke down, more lending was pulled, asset prices fell further, so on and so forth. The feedback loop ended in a virtual worldwide bank run.
The analogy with today is unsettling. The sub-prime market this time is US high yield energy debt. It is a relatively small segment of the US junk bond universe so the Fed is standing by actively considering rate hikes on the assumption that the shale market will clear relatively easily. They’ll probably be right. However, the risks that shale debt is only the core of a rising bad debt problem for financial markets appears to be rising. The broader US corporate bond market is also seeing new selling…” Commentary from…
http://www.nakedcapitalism.com/2014/12/odds-commodities-led-global-financial-crisis.html
THIS IS NOT THE SUBPRIME HOUSING BUBBLE 2.0 (Seeking Alpha)
“…things have gotten frothy in the oil patch, but it is nowhere near the magnitude of the housing debacle. The major difference is the debt has not been securitized like the subprime loan debt was increasing the risk exponentially. The securitization of subprime loans was what brought the market to its knees, not the defaults of the homes themselves. Even so, the drop in oil prices will shake out weak players…Oil's dramatic drop is nowhere near over…” Commentary at…
http://seekingalpha.com/article/2757465-kinder-morgan-and-the-good-the-bad-and-the-ugly-truth-regarding-falling-oil-prices?ifp=0
My comment: The two previous stories disagree somewhat, but one point is true. There is fear over falling oil prices and the related unknowns in the short run. While there was fear over Ebola too, the Sep/Oct correction bottomed in 19-days as fears were quickly resolved. It seems to me that this crisis will take longer to resolve. Today is day 8 after the Top of 2075. On the other hand, today the Index bounced up from its lower trend line. Is the market headed up from here? Has this oil thing been a big fakeout? I doubt it. An oil bounce was overdue.
MARKET REPORT
Wednesday, the S&P 500 was up 2% to 2013 (rounded).
VIX was down about 18% to 19.33.
The yield on the 10-year Treasury Note rose to 2.14.
Wednesday was a statistically significant day. That would lead to a down day tomorrow (Thursday) about 62% of the time. (A statistically-significant day occurs in my system when the size of the day’s move is larger than the recent normal as measured by standard deviation from the norm.) There have been 7-statistically significant days in the last 3-weeks. That usually indicates a top, although to a lesser extent it can occur at a bottom too, but only after a top cycle of significant days has been completed.
Today looked like short covering. I don’t think the drop is over. The S&P 500 needs to test the 200-dMA at about 1950. Oil was falling late in the day and I think the S&P 500 is likely to follow soon.
As always there are some signals that run cross current to the bear case. Today’s numbers were a pretty big reversal in new-high/new-low numbers and breadth. A bottom may not be too far away.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 43% at the close Wednesday. (A number below 50% is usually BAD news for the markets.) New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-36. (It was -397 Tuesday). The 10-day moving average of change in the spread was minus-51 . In other words, over the last 10-days, on average, the spread has decreased by 15-each day.
Internals switched to neutral on the market.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2013, using these
internals alone would have made a 16% return vs. 30% for the S&P 500 (in on
Positive out on Negative – no shorting).
Of course, few trend-following systems will do well in an extreme
low-volatility, straight-up year like 2013.
NTSM
The long-term NTSM system analysis remained SELL today, Wednesday. Volume and Panic indicators are negative. VIX moved to neutral.
MY INVESTED STOCK POSITION
I am 30% invested in stocks as of 16 Dec based on the
SELL signal Monday. See my post from
yesterday and earlier today for more details.
