Professor’s Comments June 16, 2016
Posted by OMS at June 16th, 2016
The Dow fell 35 points, closing at 17,640. Volume was moderate, coming in at 101 percent of its 10-day average. There were 94 new highs and only 9 new lows.
Not much changed with the cockpit indicators. The Tide remains negative and the Dean’s List is still neutral.
The Fed left interest rates unchanged. I don’t see how they could have done anything else given last month’s horrible Jobs Report. At this point, the Fed desperately wants to raise interest rates to stop the selling of U.S. Bonds by foreigners. The U.S depends heavily on foreign bankers to buy U.S. Bonds to keep the government running. Bond sales help pay for things like Social Security, Medicare, the military, and even the interest on the debt. It’s like one big Ponzi scheme. So anytime bond sales start to slow, it gets the Fed’s attention.
Last year, central bankers sold a record $225 billion of U.S. Debt. This got the Fed’s attention! This is why you’re hearing all the discussion about the Fed raising interest rates. If low interest rates stop attracting foreign buyers and they start selling, the Ponzi scheme ends!
The leader in U.S. bond sales is China. China is the largest holder of U.S. debt. In January, China reported trimming its Treasury holdings by $8.2 billion. It has been reducing its holdings of foreign debt to pump money into its slowing economy, and to support Chinese stock prices. The actual number of bonds sold by China is probably a lot larger than what they reported considering they sold over $100 billion of foreign-exchange reserves just in January alone. They probably don’t want to say how much U.S. Debt they sold because of the panic it would create.
But yesterday, the Treasury reported that all totaled, foreigners sold $76 billion in U.S. debt in April, after purchases of $23.6 billion in March. April’s outflow was the largest since the Treasury Department started keeping records of debt transactions in 1978. So now you can understand why the Fed wants to raise rates. They MUST stop the bleeding!
But right now, they’re between a rock and a hard place. If they raise rates, interest on the debt will continue to soar, leaving less money to grow the economy. Rising interest rates will also mean the dollar will get stronger, putting additional pressure on U.S. equity markets.
On the other hand, if they don’t raise rates, bond sales by foreigners will likely continue, causing major concerns about where the government will get the money to fund all of its current programs.
The problem will likely not be getting better anytime soon. Yesterday we learned that industrial production fell 0.4 percent in May. So with production on the decline, we’re probably going to see an even worse Jobs Report in June.
The one bright spot in yesterday’s trading was the VIX. It closed slightly below its upper Bollinger Band generating a usually reliable VIX Buy Signal. Sometimes it takes this signal a day or so before it kicks in, so we’ll have to watch and be patient. But with mixed indicators on the cockpit, I’m just mostly watching from the sidelines anyway.
There was only one Trigger Trade generated for today. The stock is FLIR Systems, Inc. (FLIR). The High Trigger Point is 31.68, with a Low Trigger of 30.87.
That’s what I’m doing,
h
Market Signals for
06-15-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
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Category: Professor's Comments