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16Aug2016 Market Update: Major US Indexes Slipped Further After Fed President Dudley Said Rates Possible In September

Written by Gary

Wall Street entered the afternoon session lower declining the most in two weeks (SPY - 0.4%), WTI crude trading higher in the mid 46's and gold trending back up from the morning lows. Federal Reserve President William Dudley said an interest rate hike in September was possible. Dudley's comments pulled the three main indexes away from record levels and nudged up bond yields, while the dollar (DXY) pared earlier losses.


Here is the current market situation from CNN Money

North and South American markets are lower today with shares in Mexico off the most. The IPC is down 0.49% while U.S.'s S&P 500 is off 0.44% and Brazil's Bovespa is lower by 0.24%.

Declining issues outnumbered advancing ones on the NYSE by 2,001 to 885. On the Nasdaq, 1,894 issues fell and 857 advanced.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 72%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 81%
Investors Intelligence sets the breath Above 50 bullish 66%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -0.60
StockChart.com NYSE % of stocks above 200 DMA Index ($OEXA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Following a major market correction, the conditions for safe re-entry are when:
a) Daily $OEXA200R rises above 65%
Secondary Bullish Indicators:
a) RSI is POSITIVE (above 50)
b) Slow STO is POSITIVE (black line above red line)
c) MACD is POSITIVE (black line above red line)
87%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 71%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 76%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 15.53
StockChart.com Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 82.16
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10859

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. inflation tame as economy gains momentum

WASHINGTON (Reuters) - U.S. consumer prices were unchanged in July on falling gasoline costs, but solid gains in industrial output and home building suggested a pickup in economic activity that could allow the Federal Reserve to raise interest rates this year.

Fed rate hike 'possible' as soon as September, Dudley says: FBN

(Reuters) - The Federal Reserve could possibly raise U.S. interest rates as soon as September, an influential Fed policymaker said on Tuesday in comments that boosted the dollar ahead of next week's signature meeting of world central bankers.

Wall Street falls from highs on NY Fed chief's rate comments

(Reuters) - U.S. stocks declined the most in two weeks on Tuesday after New York Federal Reserve President William Dudley said an interest rate hike in September was possible.

U.S. industrial output rises 0.7 percent in July

WASHINGTON (Reuters) - U.S. industrial production rose more than expected in July, according to Federal Reserve data released on Tuesday.

Exclusive: Blackstone challenges Honeywell with JDA financing plan - sources

(Reuters) - Blackstone Group LP has offered a financing plan to help debt-laden U.S. supply chain management company JDA Software Group Inc, giving it an alternative option to selling itself to Honeywell International Inc , people familiar with the matter said.

SEC charges company for severance agreements that deter whistleblowing

WASHINGTON (Reuters) - U.S. securities regulators filed charges on Tuesday against a California-based company for preventing outgoing employees from reaping the benefits of government whistleblower awards.

Fed's Lockhart signals one rate hike in 2016, economy on track

KNOXVILLE, Tenn. (Reuters) - The U.S. economy is likely strong enough for at least one interest rate increase before the end of 2016, as job gains continue and inflation moves in a "healthy" direction, Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday.

U.S. housing starts rise to five-month high in July

WASHINGTON (Reuters) - U.S. housing starts unexpectedly rose in July as building activity increased across the board, supporting the view that investment in residential construction will rebound after slumping in the second quarter.

Investors cut cash, load up on EM and U.S. stocks: BAML

LONDON (Reuters) - Global investors have cut their cash holdings sharply and added to emerging market and U.S. stocks in August as global growth expectations have rebounded, a Bank of America Merrill Lynch (BAML) survey indicated on Tuesday.

China Sides With Russia In Syrian War, Will Provide "Aid And Military Training" To Assad

Ever since the return of the Syrian war in 2015, which has seen both US alliance forces and as - of last - September, Russian forces too, jousting for political influence in the region under the guise of fighting ISIS while in reality either seeking to oust or preserve the Assad regime, one major player was missing: China.

That is about to change as the last major superpower enters the world's most volatile - and dangerous - region.

Beijing and Damascus have agreed that the Chinese military will have closer ties with Syria, and provide humanitarian aid to the civil war torn nation, a high-ranking People's Liberation Army officer said, adding that the training of Syrian personnel by Chinese instructors has also been discussed, according to Xinhua.

As has been historically the case, China tends to leave Middle Eastern diplomacy to the other permanent members of the U.N. Security Council, namely the United States, Britain, France and Russia, while relying on the region for oil supplies. But lately, for unknown reasons, China has been trying to get more involved, including sending envoys to help push for a diplomatic resolution to the violence there and hosting Syrian government and opposition figures according to Reuters.

The Director of the Office for International Military Cooperation of China's Central Military Commission, Guan Youfei, arrived in Damascus on Tuesday for talks with Syrian Defense Minister Fahad Jassim al-Freij, Xinhua added.

Guan said China had consistently played a positive role in pushing for a political resolution in Syria.

"China and Syria's militaries have a traditionally friendly relationship, and China's military is willing to keep strengthening exchanges and coop ...

Something's Brewing In VIX

For the last 22 minutes, VIX has not moved and S&P has coiled extremely tightly... with record short VIX positioning and record long US equities positioning, one wonders what happens next? (Especially given The Fed's hawkish jawboning).

Did the market die?

Bear in mind that speculative bullish positions all added this week with VIX shorts and Dow longs now at all-time-record highs.. and Nasdaq longs soaring...

Given all of that, we think it is worth remembering JPMorgan's quant guru Kolanovic's recent conclusion:

As this collapse in realized volatility is not a fundamental change in volatility regime, we expect realized volatility to increase (this increase in market volatility is shaping to be a consensus view, as indicated by steep contango of VIX futures). Option exposures that are pressuring volatility should roll-off, and investors should increase leverage and set protection closer to the current market level. This will set the stage for a more rapid increase in volatility. We have seen these switches between extreme low and high volatility that manifest themselves as high volatility of volatili ...

5 Reasons Why Austrian Economics Is Better Than The Mainstream

Submitted by Jonathan Newman via The Mises Institute,

Noah Smith has acknowledged the failings of mainstream macroeconomics, but he says that none of the "outside ideas" offer a better replacement. He failed to mention the Austrian school, but we can still show how the Austrian tradition parries his criticisms with ease.

1. Quantitative Models Totally Miss the Nature of Human Action

Smith dismisses all outside approaches that do not produce quantitative forecasts, even though the best, newest, and high-powered quantitative macroeconomic models have failed recently.

The quantitative approach, however, totally misses the nature of human action, the fundamental starting point for economics. All economics boils down to individuals making choices, the outcome of which is dependent on individuals' preferences.

Unfortunately, you can't even do basic math with people's preferences for two reasons: preferences are subjective, and preferences are ordinal. You can't measure or compare something you can't observe, and you can't do math with ordinal figures. Adding 2nd place to 3rd place doesn't get you 5th place or 1st place. It gets you nowhere, which is exactly where mainstream macro is today.

2. The Micro/Macro Separation is Baseless

Smith dedicated his article to problems with macro theories, but Austrians understand that there is no meaningful distinction between micro- and macroeconomics. The only difference is one of scale and focus, but the fundamentals of economics are the same no matter if you are looking at individual consumers and firms, ...

Edward Snowden Explains The Historic NSA Hack: "This Escalation Could Get Messy Fast"

Yesterday we reported that in a historic first, an unknown group of hackers, the "Shadow Brokers" had hacked the NSA's cuberattack hacking division, "The Equation Group." Many were wondering what are the strategic implications of this dramatic escalation, which took place just as the US was accusing Russia of virtually every other recent prominent hacking, and whether it suggested something bigger was taking place behind the scenes.

Today, the most famous NSA (ex) employee, Edward Snowden, chimed in on this topic in a tweetstorm in which he tries to explain who did it:

Circumstantial evidence and conventional wisdom indicates Russian responsibility. I suspect this is more diplomacy than intelligence, related to the escalation around the DNC hack

... why they did it:

This leak is likely a warning that someone can prove US responsibility for any attacks that originated from this malware server.

... and the consequences:

That could have significant foreign policy consequences. Particularly if any of those operations targeted US allies. Particularly if any of those operations targeted elections. Accordingly, this may be an effort to influence the calculus of decision-makers wondering how sharply to respond to the DNC hacks.

and concludes as follows:

this leak looks like a somebody sending a message that an escalation in the attribution game could get messy fast.

ValueAct Says 'More Please' at Morgan Stanley

An activist's praise for Morgan Stanley signals a possible turnaround in investor attitudes toward major U.S. banks.

BHP Mines Cash for Uncertain Future

BHP Billiton's stock surged to its highest level in nine months, and investors are rightly pleased to be at the top of the miner's priority list.

BOE Gets Its Way on Bond Buying---for Now

The BOE's quantitative-easing hiccup hasn't been repeated. But gilts could still face volatility.

Stock buybacks tumble to 4-year lows

Corporate stock-buyback announcements have fallen this earnings season to their lowest volume since the summer of 2012, just as corporate share offerings have spiked.

The Margin: Polling data confirm Bob Costas was wrong about Bob Marley and Usain Bolt

NBC broadcaster Bob Costas on Sunday asserted that Usain Bolt, after winning the 100-meter dash for the third time, was a more popular Jamaican than Bob Marley. He asserted incorrectly, polling data show.

Why Aetna's exchange withdrawal could mark a turning point for Obamacare

Health insurers once talked about expanding exchange participation next year.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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