Monday, October 30th, 2017

Faulty signals bring the market down

Today we saw big engulfing candles on SPX after a relentless climb for the last two weeks. The action is quite familiar as in the past. The transports IYT and broad market RUT were showing weaknesses all along this week. Sooner or later it caught up with SPX and some folks decided to take profits as well.

There are signs in the economic data that is discouranging to the markets. Last months  meager job report of 88,000 and a tepid GDP number of 2.5% growth last quarter did not help. Today the ADP payroll data with 144,000 jobs added is making investors a bit nervous. This kind of weakness in the economic data is not helping the bulls and at some point, the cracks open up and the market dives like we saw today.

Apart from the weak economic data what we learned today that the Feds will continue printing paper money at least till the end of the year. The quantative easing QE is making the Feds inject 85 billion dollars a month into the economy which is keeping the weak Fiscal policy propped up for the time being. This in turn has helped the equity markets reach some new levels this year though. As long as the Feds keep printing presses running buying Treasury  and mortgage bonds the  economic engine will keep sputtering along.

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