Saturday, 20 May 2017

May 20, 2017 – Weekend Market Comment

May 20, 2017 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. You can read the latest version each week by bookmarking http://cme4pif.blogspot.ca/. For full details read my disclaimer (link at the bottom of this page). 

U.S. stocks finished higher Friday for a second straight session of gains, but closed in negative territory for the week, unable to fully bounce back from sharp losses in the middle of the week sparked by White House drama.

The S&P 500 index SPX, +0.68% closed up 16.01 points, or 0.7%, at 2,381.73, with all of its 11 main sectors trading higher. The industrials and energy sectors led the gains both rising more than 1%.




Markets were rattled earlier this week, with investors succumbing to a drumbeat of negative news stories focused on President Donald Trump and his inner circle’s relationship with Russia. President Donald Trump declared himself the victim of the “greatest witch hunt” in US political history as it emerged his campaign advisers had 18 contacts in seven months with Russian officials before the election.



Here is what the charts say this week:





101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a rising uptrend.  NOTICE THE SLOPE (second window), we might be ending our new slope upward.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are up but recent red zone increase chances of this is the end of the bull market.

105 Non Farm Payroll
Lots of jobs! But beware this is lagging indicator. The smart money is gone before this turns down.

107 Industrial Production
New upswing stronger industrial production.  That is good news.

115 Renko
Sideways?

203 OBV
Market flat to down but OBV is along. 

207 VIX
Big scare but abating now?.
!
209 VIX Evaluator
Still not good.


211 S&P500 over 50 day
Now about 51% of stocks are above their 50 day MA, down from last week when it was 55%.

213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. 


301 NASDAQ Summation
Nasdaq breadth is dying, but NASDAQ has been all the action, now a breather? Pay attention -- could be volatile.
!
303 Aggressive Defensive
Defensive - Caution

305 Consumer Bonds vs Equities
Bonds up. Consumer flat.

307 Bond Direction
Bonds still trending up.

309 Sectors
Defensives upturn, tech leads, banking lag. BULLISH!

311 Nations
Emerging Markets lead! Canada sucks.

313 Major sectors
Commodities fall, especially Iron Ore, global slow down on the horizon?

! = Pay attention this chart is important this week.



What I Find Interesting


The VIX Before the Storm
This week (the so called fear index) the CBOE Volatility Index decreased 7.6 percent to 9.77, the lowest since 1993. Volatility in the U.S. equity market has dissipated as stock investors whistled past geopolitical unknowns from populist politics to heightened threats from North Korea. While trade agreements, tax reform and the future of financial regulation may hang in the balance, investors have instead focused on one of the best global earnings seasons in a decade and signs of economic growth.

Calm has blanketed other markets as well. Volatility in U.S. Treasuries is down 24 percent since last month and fell to the lowest since October, according to a Merrill Lynch index that gauges volatility from options prices. In the currency market, a JPMorgan Chase & Co. index of volatility in G-7 currencies is at its lowest in more than two years.

In this weeks May 20th edition of the Economist they point out that the two prior times the VIX was below 10 (it did that 1995 and 2007) the next year there was a recession. In the graph below is the VIX, the high spikes (over 30) are market sell offs, always preceded by ultra low levels (sometimes even below 10):

Perhaps more disturbing is who said it. The Economist is a publication that seldom talks about the U.S. equity markets in anything but very broad stokes. If this volatility anomaly has got their attention, it might be a good time to consider if the party is almost over.





Canada Tanks
As Bloomberg pointed out this week, and I warned was coming back in 2012, the Canadian dollar is among the world’s worst performing currencies this year, beaten down by plunging oil prices and the risk of a trade war with the U.S. under President Donald Trump. Enter Home Capital: analysts including those at BlackRock Inc. and Edward Jones & Co. warn that contagion from Home Capital could spill out into the wider economy, further hurting the loonie.

According to Global News the Canadian dollar is headed to 65 cents U.S. in exchange



But will this go beyond and begin a super recession? Many experts see like positive in the economy in Canada in 2017. In March this year the Huffington Post pointed to a new report from one of the world’s top banking authorities is warning that Canada and China are the two countries which face the highest risk of a financial crisis, thanks to elevated debt levels. “Early warning indicators for financial crises continue to signal vulnerabilities in several jurisdictions,” stated the report from the Bank for International Settlements (BIS).




Home Capital has been in the news as it heads for bankruptcy, but Craig Fehr on BNN points out the whole industry is in danger. The risk from Home Capital doesn’t stem from its size or linkages -- it holds only about 1 percent of Canadian mortgages and these are on its own books, which limits spillovers. However a disorderly fallout from Home Capital would damage a sector which is driving Canadian growth. Real estate, residential construction and finance sectors were responsible for around two-fifths of output in Canada’s fastest growing provinces.



As can be seen except for one year after the financial crisis commodities have been falling in price, and the Canadian economy is tied to commodities, here is the CRB index of commodity prices:


With the Oil industry in free fall, all that Canada has left is the housing bubble, pushed up by dirty money being laundered by Canadian law firms in to number companies buying; vacant condos, luxury homes and other real estate. However as I pointed out last December, the flow of Capital from China is slowing.

In fact, home construction is ALL that holds up the Canadian economy now:

The markets benefiting from this are in Toronto and Vancouver. Just look at the skyline of Toronto or Vancouver . . .

Toronto 1984: Office towers and vacant industrial land:

Toronto 2017: condos condos, condos:

Vancouver 1984: Office towers and vacant industrial land:

Vancouver 2017: condos, condos, condos:



Look at this chart of new homes for sale listings in Toronto ... this looks like the panic of the financial crisis.

According to the Financial Post Vancouver sales are down a record 40% and now prices are falling, so far over 8%.


What Works Now
Gold

Gold (Ticker:GLD)


 

AutoDesk
AutoDesk (Ticker:ADESK)


What I Think
I think we are in a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009), and neither show signs of abating - YET.

Despite the better markets on Thursday and Friday, this pull back is a time to be unleveraged and in safer investments. Raise cash, raise stops and if you are brave, buy the dip. Be very very careful, a big pull back could resume this week.




You can learn more about my indicators by visiting the CME4PIF school by clicking here.


Don't squint, All graphics can be enlarged by click on them.


Read My Disclaimer Here

Saturday, 13 May 2017

May 13, 2017 – Weekend Market Comment

May 13, 2017 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. You can read the latest version each week by bookmarking http://cme4pif.blogspot.ca/. For full details read my disclaimer (link at the bottom of this page).

U.S. stocks closed slightly lower on Friday to record their first weekly retreat in nearly a month as investors weighed an uncertain political environment stemming from President Donald Trump’s firing of former Federal Bureau of Investigation Director James Comey. 


The S&P 500 index SPX, -0.15% slipped 3.54 points, or 0.2%, to close at 2,390.90. The S&P 500’s subdued action on Friday marks the 13th straight session that the large-cap index moved less than 0.5%, the longest streak since September 1995, according to the Dow Jones Data Group. 

Here is what the charts say this week:




101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a rising uptrend.  NOTICE THE SLOPE (second window), we might be starting another new slope upward.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are firmly up!!!

105 Non Farm Payroll
Lots of jobs! But beware this is lagging indicator. The smart money is gone before this turns down.

107 Industrial Production
Flat but strong industrial production.  That is good news.

115 Renko
Sideways?

203 OBV
Market flat to down but OBV is along. 

207 VIX
Fear craters... hmmm wow that is confidence.

209 VIX Evaluator
All good again.


211 S&P500 over 50 day
Now about 55% of stocks are above their 50 day MA, down from last week when it was 62%.

213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. 


301 NASDAQ Summation
Nasdaq breadth is dying, but NASDAQ has been all the action, now a breather? Pay attention -- could be volatile.
!
303 Aggressive Defensive
Defensive - Caution

305 Consumer Bonds vs Equities
Bonds up. Consumer flat.

307 Bond Direction
Bonds still trending up.

309 Sectors
Defensives upturn, tech leads, banking lag. BULLISH!

311 Nations
Asia leads! Canada on bottom of range.

313 Major sectors
Commodities fall, especially Iron Ore, global slow down on the horizon?


! = Pay attention this chart is important this week.


What I Find Interesting

China currency controls start to limit overseas investment. It is almost palatable in both Canada and Belize where I have been the last few months, that Chinese investment projects are slowing as access to U.S. funds is drying up. According to Forbes and Deallogic, they are 90% less than last year. Similar controls were reported in the Financial Times. Check out the gloom in this real estate blog it points that Chinese thirst for California real estate may be drying up, that could be 80% of the new buyers gone. As I predicted in The China Problem as upper levels of the elite move their money offshore the door would begin to close the door to lower levels as the capital flight would destroy the debt based economy. 



What Works NowSemiconductors

NIVIDIA (Ticker:NVDA)

Chips in Tawian 

(Ticker: TSM)


What I Think

I think we are in a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009), and neither show signs of abating. 

Last weeks super low vix was probably unsustainable, and sure enough a sell off is starting. That is not to say that we are not in bull market, because we are, but this pull back is a time to be unleveraged and in safer investments. Raise cash, raise stops and if you are brave, buy the dip. Be very very careful, a big pull back could hit us this week.

This week I am writing to you from the Canadian wine growing region of Osoyoos BC, where spring comes early. 






You can learn more about my indicators by visiting the CME4PIF school by clicking here.


Don't squint, All graphics can be enlarged by click on them.


Read My Disclaimer Here


Saturday, 6 May 2017

May 06, 2017 – Weekend Market Comment

May 6, 2017 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. You can read the latest version each week by book marking http://cme4pif.blogspot.ca/. For full details read my disclaimer (link at the bottom of this page).

One of the problems facing the current stock market is that some sectors have been rising, while others have suffered large losses. Since the start of the year, for example, technology has gained nearly 14% versus a 6.7% gain for the S&P 500. Energy stocks, however, have plunged -10% this year. Industrial metal miners have lost -6% as have telecom stocks. Obviously there's a tug of war going on within the market as a whole. The question is which side is winning. 

Here is what our charts say:




101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a rising uptrend.  NOTICE THE SLOPE (second window), we might be starting another new slope upward.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are firmly up!!!

105 Non Farm Payroll
Lots of jobs! But beware this is lagging indicator. The smart money is gone before this turns down.

107 Industrial Production
Flat but strong industrial production.  That is good news.

115 Renko
Broken resistance, new leg up?

203 OBV
OBV (red line) is catching up to the market. Phew!

207 VIX
Fear craters... hmmm wow that is confidence.

209 VIX Evaluator
All good again.


211 S&P500 over 50 day
Now about 62% of stocks are above their 50 day MA, from last week when it was 58%.

213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. 


301 NASDAQ Summation
Nasdaq breadth is returning. Pay attention -- could be volatile.
!
303 Aggressive Defensive
Flat - Caution

305 Consumer Bonds vs Equities
Bonds fail. Consumer strong. BULLISH!

307 Bond Direction
Bonds still trending up, just not recently.

309 Sectors
Defensives upturn, banking lag. BULLISH!

311 Nations
Germany rebound! Philippines leads! Canada bounces on bottom of range.

313 Major sectors
Commodities fall, especially Iron Ore, global slow down on the horizon?

! = Pay attention this chart is important this week.

What I Find Interesting
Sell in May -- No Way!

From May to October seasonal factors might exert negative pressure on the market. A study by Andrade, Chhaochharia and Fuerst (2012) found that the summer/fall seasonal pattern is still very much alive. In the 1998–2012 sample on average November–April they found that returns are larger than May–October returns in all 37 global markets they studied. On average, the difference is equal to about 10 percentage points. The magnitude of the difference is the same in other studies too. Further back-testing by Mebane Faber found the effect as early as 1950.

Despite the science "Sell in May, and go away" is not a hard and fast rule, it is a tendency. The best example of how the rule doesn't always work is all but one of the last few years -- the market actually closed higher, not lower. What is true, is that in the fall and summer can be some of the worst draw downs, historically many crashes happened in Sept or October, including the big  three: 1929, 1987 and 2007-2008



The sweetest time of investing (Halloween to spring) is past for another year and could work against the market rally. I would just make note of it as a background issue, because we have no way of knowing how much it will influence price movement. So be aware of the market, but don't go away yet.

Canada Housing Bubble
Well I have been afraid of the Canadian housing market since 2008 and year after year I am proven wrong, as money flees China to Canadian real estate, as I wrote in the China Problem.  However, the Alberta economy has been in a tail spin, for two years now due to a crash in the price of oil, now 1/3 the peek price. This has meant 120,000 top paying jobs have vanished. According to CBC news home prices are dropping even still in Alberta. Vancouver home prices took a good hit when an election promise taxed foreign buyers. Global News reports the drop was over 8% in the first quarter of 2017. Now the last hope Toronto has started to see a pull back in home prices (Read more in Bloomberg.) and excess inventory is starting to build. 


Let me show you the problem, here is what a $220,000USD home looks like today in Nevada:

Next here is a $1.3 million cdn dollar home in a bad area of Vancouver:

Ahh you see we have a problem here. Jeff Desjardins who calls his posts the Visual Capitalist, points out that Canada is the most overpriced realty market in the world. Also that most of the only good news in the fall of 2016 really was from Vancouver alone.

As in the USA in 2007 trouble became obvious when smaller lenders began to fail. Canada's Home Capital is all over the news (read more in Bloomberg) as it raised billions in five days of bailouts due to Ottawa putting pressure on major Canadian banks to save the financial system. According to Macleans Magazine, the whole industry is full of false mortgage applications, lair loans and big leverage, it all sounds eerily like 2007, but I have been saying that since 2008.


What Works Now
Stock Index Data

MSCI (Ticker:MSCI)
MSCI Inc. (formerly Morgan Stanley Capital International), is a US-based provider of equity, fixed income, and hedge fund stock market indexes, and equity portfolio analysis tools. It publishes the MSCI BRIC, MSCI World and MSCI EAFE Indexes.



What I Think

I think we are in a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009), and neither show signs of abating. 

I take a weight of the evidence approach to broad market analysis. This means I do not rely on one indicator to shape my broad market stance. Instead, I use several indicators to weight the evidence. These include the 17 charts listed above. The first two charts are the big picture, chart 101 the bull Bear Lines and chart 103 NYSE High Low Market Forces. There is no magic predictive power to these two charts, the market could begin to unwind tomorrow --  but it does draw a line in the sand, when to get pessimistic. Overall these 17 charts say the weight of this evidence has been bullish since March 2015 and remains bullish right now. At this point, I am simply monitoring the indicators for signals that will prove this bullish stance otherwise. As a trend follower, I will wait for the market to signal and try to refrain from jumping the gun.  

Right now I see a strong bull market with a breather coming, still good just not as crazy.




You can learn more about my indicators by visiting the CME4PIF school by clicking here.


Don't squint, All graphics can be enlarged by click on them.


Read My Disclaimer Here