This is an important week for economic data, leading off with Durable Goods this morning at 10am.  Following later in the week, we’ll get CPI, PPI, import/export prices, continuing claims and consumer sentiment — not to mention FOMC minutes.

This morning, we’ll take a look at durable goods new orders – a pretty good indicator at times for what to expect from the stock market. The chart below shows YoY percentage change on a monthly basis.

Note that the last time orders broke trend we saw a one-month bounce followed by a much bigger drop which, in turn, corresponded with an interim top and the 2015-2016 correction.  Since it has recently broken trend again, it could have much to say about the state of the economy.

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Despite the bounceback from last month’s dismal employment data, all of our targets remain the same. The only deviations at this time are USDJPY, which has broken out of a falling channel… …and VIX, which put a shot across the algos’ bows this morning in order to ensure the proper response from equities.  It has since bounced back to channel bottom support — putting the knee-jerk reaction in doubt.I’m going to spend the day focused on the big picture.  In the meantime, some food for thought…

Corporate debt to GDP just broke out to new highs.  Note that this ratio correlates well with both recessions and market tops.

Another measure of equity valuations and debt is the multiple of corporate equities to total corporate credit market debt. It just reached levels not seen since 3Q 2000.

The ratio peaked in 1Q 2000 and 2Q 2007, just prior to SPX’s peaks (FRED doesn’t offer SPX data prior to 1990.)

Last May we questioned whether TSLA could avoid a crash.  The answer came quickly, as TSLA bounced back above horizontal resistance a month later.  Since then, however, it’s been a constant battle — marked by multiple breakdowns and rescues (most of which landed Musk in hot water.)

The latest bounce, however, pits the stock against the horizontal resistance, the .382 Fib retracement and a falling wedge top — triple resistance. Then, came the latest disastrous forecast miss.Now, TSLA looks likely to test 250 again.  If it fails, it could fail in a very big way. continued for members… (more…)

Three sessions after SPX completed its Golden Cross, the NASDAQ Composite is set to join it.

Stocks continue to benefit from algos keying off of VIX, which has reached our next downside target… …and, USDJPY, which threatened a breakout from the falling white channel. As a result, ES popped through the last Fib resistance standing in its way from reaching new highs.Of course, there are other considerations.

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Oil and gas have both now reached our upside targets. USDJPY is pressing up against the top of a falling channel. VIX is testing support that has been responsible for several declines over the past two months. Durable goods orders just came in well below expectations. What will it take to stop ES/SPX from pushing up through overhead resistance?If it can’t push through, the nearest strong support is well below current levels.

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“The fundamental economy looks very good,” Larry Kudlow maintains. Apparently it’s doing so well that we need an immediate 50-bps rate cut.

If there’s one thing the markets love, it’s more easy money.  If there’s anyone who loves easy money more than the markets, it’s politicians.  Candidate Donald Trump told us so in Sep 2016.

Republican presidential nominee Donald Trump, who has previously accused the Federal Reserve of keeping interest rates low to help President Barack Obama, said on Monday that the U.S. central bank has created a “false economy” and that interest rates should change.

“They’re keeping the rates down so that everything else doesn’t go down,” Trump said in response to a reporter’s request to address a potential rate hike by the Federal Reserve in September. “We have a very false economy,” he said.

“At some point the rates are going to have to change,” Trump, who was campaigning in Ohio on Monday, added. “The only thing that is strong is the artificial stock market,” he said.

Friday saw stocks break out of a well-greased falling channel.  Today, futures are up another 20 points and threatening to take out March’s highs.

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The biggest question in the charting world right now is whether the S&P 500 will complete a Golden Cross — where the 50-DMA crosses above the 200-DMA. Unless SPX falls to around 2600 by next week, it is inevitable.  But, what happens after that isn’t exactly written in stone.

SPX experienced its evil twin, the Death Cross, back on Dec 7 and plunged 350 points over the next few weeks.

As positive as Golden Crosses are supposed to be, sometimes they fizzle out.  The most notorious example was in 2015. After the Golden Cross occurred on Dec 24, SPX rose all of 21 points before plunging 269 points over the following three weeks.There were a number of hints that it might have been a head fake.  For one, SPX actually fell below both moving averages the day after the Golden Cross occurred — not a bullish move.  In addition, the 10-DMA (thin red line) hadn’t crossed above the 20-DMA (white line.)

As we can see from the chart up top, these 10/20 crosses are pretty good — but, not perfect — indicators.  The red arrows mark sell signals and the green arrows mark buy signals.

If, beginning Oct 9, someone had sold at the close on each day the 10-DMA crossed below the 20-DMA and bought on the days it crossed above, they would have earned 9.2% versus the buy-and-hold return of -2.3%.

Had someone sold at 2880 on Oct 9 and bought at 2346 on Dec 26, they’d be sitting on a 34% gain.  In other words, there are compelling reasons to try and time the market — whether to maximize one’s return or simply to protect capital.

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I love it when a plan comes together.  From Pins and Needles on Feb 4…

And, from this morning…This fits in nicely with our economic model and is helping to drive rates toward our next downside target.Futures jumped 40 points on the Feb 28 announcement of 2.6% Q4 GDP.  Do you suppose they’ll shed 40 points on today’s downward revision to 2.2%?

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