SPDR S&P 500 (SPY)

[gdl]

I believe we already witnessed the lows for this drop. Most likely we have one more test in another 3 or so weeks but it should easily hold. The real test would be to see if the year long weakness in China and the EU will start to affect our segments of the economy that have held strong.

Earnings season has been tested and it seems to have passed that test. Earnings forecasts can still be an issue as we go forward. I look at the US economy in context to the rest of the world. The strong dollar is no fluke. It should rise or fall going forward based on China and EU's ability to form a bottom and eventually rise.

The strong resistance area on the SPX is 1950 - 2000. Breaking 2000 should seal it for the bull case. if this current move is a fake out we should know immediately.

I also believe, given the domestic strength thru this latest drop, that we will be surprised on the upside going forward. Before 2016 is out the talk will exclusively be on how much the FED needs to raise rates. A good sign of manufacturing turnaround might just be the Chicago PMI figures for January. It shot up big time and might be indicating that overseas problems might have bottomed. One month doesn't make the case so we wait for other signs.

I find it strange that low oil prices and weakness overseas is the dominant issue for whether we are experiencing a recession here. I see no signs of one yet.

best to keep an open mind and look at all variables when trying to determine where we are headed. the other issue is how will US companies fare with future earnings in this current environment and what is needed to see an acceleration of those earnings. that in my mind is the more important issue as opposed to the strength of our domestic economy. Without the help of China and EU there will be major headwinds for some of our major corporations going forward.

Therefore I think 2016 will be seen as a dichotomy of 2 conflicting sources for earnings. Domestically minded companies should do very well in 2016 while the multi-nations struggle and must get help from overseas. Any upward revision from overseas will relieve some of the strength in the dollar and also help in the manufacturing side.

Think next week the playing cards will be exposed. we either breakdown and thru the lows or we build on the strength.