The market remains hostage to negotiations in D.C. Last Friday traders covered their shorts in anticipation of a potential weekend deal, as they did not want to be in front of what many expect to be a screaming rally once the can is kicked down the road, but of course if there was no deal (which is what happened) that created vulnerability for the market. Stocks gapped down at the open, staged a decent rally intraday, but rolled over into the close to finish near their lows. The S&P 500 fell 0.85% and the NASDAQ 0.98%. The main economic report of the day was consumer credit:
U.S. consumer credit rose more than expected in August, but a third straight month of decline in credit card usage was consistent with recent tepid consumer spending. Total consumer credit advanced by $13.63 billion to $3.04 trillion, Federal Reserve data showed. Revolving credit, which mostly measures credit-card use, fell $883.41 million, declining for a third straight month. Nonrevolving credit, which includes auto loans as well as student loans made by the government, increased $14.51 billion in August. That followed a $12.23 billion increase in July.
We are going to introduce a new secondary indicator on our index charts go forward - this one is called the MACD indicator and it is simply a momentum indicator. It will be below the charts each day; for a primer please go here. If you want the simple explanation, it plots two moving averages; a 12 and 26 day period...when the shorter term indicator is above the longer term you usually are in a period of momentum (bullish) ... and vice versa. While subject to whipsaw from time to time, it is widely used so we'll begin talking to it.
Our S&P 500 continues to be weaker than the NASDAQ but with the sustained weakness, now in week 3, the NASDAQ is also beginning to take some hits. Notice the MACD indicator went negative (when the black line - the 12 day moving average - crosses below the red line - the 26 day moving average) late last month. The S&P 500 has been weak since. With the NASDAQ this just is happening very recently , showing its relative strength. This is now the 3rd test of the 20 day moving average of the NASDAQ, whereas we are stuck between the 50 and 100 day moving averages for the S&P 500.
Today was a second very brutal day in terms of breadth - we've seen two bad readings in the past week, the worst of the past 6 weeks.
The NYSE McClellan Oscillator is now firmly below 0. Generally this will fall to the -50 to -60 range to indicate oversold conditions but a few times a year in extreme circumstances can fall to the -100 range. But anytime we are in a negative condition that persists it tells us our breadth is bad i.e. fewer names are working and caution is to be used.
The volatility index (VIX) continues to "break out" - this is not one thing a bull would want to see have such a nice chart.
One area that did ok today was silver. After finally breaking a year long series of stair steps down mid summer, we saw a frantic rally into late August and now a pullback. One can see the same sort of resistance on this chart as we have in the S&P 500 above.
Last, for all you folks who tote around $100 bills as it if was nobody's business, make sure you are aware of the new redesign coming soon to a bank near you.
The new bill has several features designed to make it easier for the public to authenticate but more difficult for counterfeiters to replicate. Those measures include a blue, 3-D security ribbon, as well as color-shifting ink that changes from copper to green when the note is tilted. That ink can be found on a large "100" on the back of the bill, on one of the "100's" on the front, and on a new image of an ink well that's also on the front. The image of Benjamin Franklin will be the same as on the current bill, but like all the other newly designed currencies, it will no longer be surrounded by an dark oval.