WEEKLY MARKET DIGEST: ARE CONDITIONS RIPE FOR A 1987 TYPE CRASH? $GLD $SLV $USO $DIA $SPY $QQQ $TBF $TBT

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WEEKLY MARKET DIGEST: ARE CONDITIONS RIPE FOR A 1987 TYPE CRASH? $GLD $SLV $USO $DIA $SPY $QQQ $TBF $TBT

(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers. ) 

ARE CONDITIONS RIPE FOR A 1987 TYPE CRASH?

Today is a perfect day to ponder if conditions are ripe for a 1987 style crash.

Today is Friday, October 16, 2015 and an option expiration day.  In 1987, October 16th was also a Friday and option expiration day.

On October 19, 1987, the U. S. stock market fell 22.61%.

At present the following conditions are similar to 1987:

  • The U. S. started shifting to a slower growth
  • Technical picture
  • Sentiment
  • Options activity
  • New tensions in the Middle East
  • Oil prices collapsed in 1986 by more than 50%
  • Rising illiquidity
  • Corporate earnings decelerating

The following conditions are different today:

  • Inflation rate is much lower
  • Interest rates are much lower
  • Market valuation is comparatively lower
  • Central banks are manipulating the markets
  • The United States’ share of the world GDP has dramatically declined
  • China has risen as a great economic power

In our analysis, there is only a LOW probability of a 1987 style crash in the near future.

So far, on the average, earnings are coming below expectations.

There is a massive short squeeze going on in oil after very bearish inventory data.

Gold and silver are slightly pulling back.

Interest rates are range bound.

Our very, very short-term early stock market indicator is neutral but can easily reverse to either side.

What To Do Now?

Over the next three days, earnings and economic data is likely to provide enough clarity to develop and analytically well grounded investment plan.  In the meanwhile, consider continuing to hold existing positions and lots of cash.

Please remember that you will not be able to take advantage of new opportunities if you do not have enough cash.  This is not the time to be fully invested.

Gold futures are at $1183, silver futures are at $16.14, and oil futures are $47.14.

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S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2000, 1962, and 1920.

DJIA futures are down 9 points.

TWO NEW DATA POINTS SHOCK THE CROWD

Two new pieces of economic data released this morning are shocking the crowd.  Fortunately, if you have been reading the morning capsule you will not be shocked.

We have expressed doubts about the validity of some of the recent economic data points that have resulted in a sharp run up in stocks and gold.  Finally, today that doubt has a lot of new analytical support.

Core CPI came at 0.2% vs. 0.1% consensus.  On an annualized basis this is about 2%.  The Fed has repeatedly said that its target for inflation is about 2%.  The implication being that if it was not for the Fed becoming impotent, there is no excuse left for the Fed to NOT raise interest rates.

Weekly Initial Jobless Claims came at 255K vs. 269K consensus.  This is a leading indicator and has heavy weight in our models.  This is also a leading indicator that is showing employment picture is getting better.

Both stock and gold bulls are disappointed as they were expecting weaker data.

Gold having earlier spiked over $1190 has pulled back to $1175 as of this writing.  It is likely that gold bulls will try to run it up one more time.

Interest rates are not responding to the new data.

Oil has broken  the support at $46. However the DOE data to be released at 10:30 am ET will determine the direction.

Our very, very short-term early stock market indicator is positive.  The reason for this indicator being positive is very weak data coming out of China.  However, if the market participants start focusing on the strong U. S. data, the stock market can easily turn to become negative.

What To Do Now?

Over the next four days, earnings and economic data is likely to provide enough clarity to develop and analytically well grounded investment plan.  In the meanwhile, consider continuing to hold existing positions and lots of cash.

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Please remember that you will not be able to take advantage of new opportunities if you do not have enough cash.  This is not the time to be fully invested.

Gold futures are at $1175, silver futures are at $16.04, and oil futures are $46.10.

S&P 500 resistance levels are 2000, 2017, and 2038; support levels are 1962, 1920, and 1860.

DJIA futures are up 67 points.

SMART MONEY SELLS, LOWER EARNINGS, WEAK ECONOMIC DATA AND INDIA BONDS RISE

Yesterday the stock market opened low.  Bargain hunters stepped and ran up the market.  When S&P 500 futures crossed 2010, Smart Money started aggressively selling.  Continued buying by bargain hunters proved not to be enough to contain selling by the Smart Money and the market finally catered  in the afternoon.

This morning, bargain hunters are back in force with aggressive buy orders.  So far Smart Money is inactive this morning. After regular hours trading opens, we will be carefully monitoring Smart Money actions.

The new economic data released this morning is weak.  Retail Sales Ex-auto came at -0.3% vs. -0.1% consensus.  Core PPI came at -0.3% vs. +0.1% consensus.

Bonds and gold are running up on weak data.

Oil is still digesting yesterday’s IEA projection of the glut continuing into next year.

On the average, earnings so far are coming below expectations.

Strong demand by foreigners is pushing up new bond prices in India.  For Rs 5600 crore offering of government bonds  Rs 17266 crore offers were received.

Our very, very short-term early stock market indicator is neutral.

What To Do Now?

Over the next five days, earnings and economic data is likely to provide enough clarity to develop and analytically well grounded investment plan.  In the meanwhile, consider continuing to hold existing positions and lots of cash.

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Please remember that you will not be able to take advantage of new opportunities if you do not have enough cash.  This is not the time to be fully invested.

Gold futures are at $1175, silver futures are at $16.00, and oil futures are $46.21.

S&P 500 resistance levels are 2000, 2017, and 2038 support levels are 1962, 1920, and 1860.

DJIA futures are down 17 points.

SO FAR REVENUE MISSES, CHINA IMPORTS FALL AND OIL GLUT

So far this earnings season on average companies are reporting revenue shortfalls; however the number of companies that have reported so far is very small.  Earnings results over the next few days will have the heaviest weights in our models.

China imports fell 20% from the same month a year ago.  This is the 11th  monthly decline and another data point that growth in China is slowing.

IEA says that oil glut will continue into 2016.

Gold and silver are range bound.  Money has been pouring into gold as a safe haven.

Interest rates are ticking down.

Our very, very short-term early is negative.

What To Do Now?

It is important to let upcoming earnings provide some clarification before making any new commitments unless there is a specific post.  Consider continuing to hold the present positions.

Gold futures are at $1163, silver futures are at $15.91, and oil futures are $46.82.

S&P 500 resistance levels are 2017, 2038, and 2063; support levels are 1962, 1920, and 1860.

DJIA futures are down 114 points.

 

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