Markets Remain Extremely Overbought

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3-7-2016 3-08-43 PM


Stocks started the day Monday lower but quickly dip buyers entered even as conditions remain overbought in the extreme.

High oil prices continue to be highly (almost 90%) correlated to these price movements. It’s comical, to me anyway, that almost all commentary having to do with rising energy prices contains “hope” as the reason for higher prices.

And, “hope” is OPEC and others will “freeze”, or in fact “cut”, production to curtail oversupply. If markets were self-regulating giving free economic pressures, there wouldn’t be any need for all this nonsense. Nevertheless, even if producers overseas stated they would freeze/cut production, experience has shown cheating by participants would immediately take place.

The major thing U.S. producers have noticed that as production as increased domestically they can’t even find storage for the product. That in itself is how a free market should regulate itself.

Economic data Monday included Labor Market Conditions falling -2.4% vs prior -0.8% and Consumer Credit imploding to $10.5 billion vs prior adjusted much lower from $21.5 billion to only $6.5 billion. Um, not “solid”.

One thing supporting stocks are corporate stock buyback activity. It expanded 39% YoY and according to Goldman Sachs corporate share buyback programs have increased greatly as stocks have fallen. This activity has been the tailwind bulls have thrived on as corporations are using cheap credit to engage in these activities.

Since it’s become routine in this low interest rate environment nothing been done to increase the company’s long-term growth.

Another positive for stocks is the bizarre thinking that since economic data is so weak we’ll likely not see an interest rate hike as March Fed Meeting next week, so that’s bullish right? Bad news is good in that regard.  

Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red).

Dependent on the day (green) may mean leveraged inverse or leveraged short (red).

 3-7-2016 3-20-14 PM

Volume was once again very light and breadth per the WSJ was positive.

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3-7-2016 3-21-15 PM
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So again, it’s back to bad news is good as weak economic data means Fed can’t raise interest rates, the high correlation from stocks to crude oil remains as do stock buybacks.

Beyond that, words fail me.

Let’s see what happens.

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