Saturday, 28 December 2013

December 28 2013 – Weekend Market Comment

December 28 2013 – U.S. stocks fell slightly Friday, with the Standard & Poor’s 500 Index trimming a weekly gain, after benchmark indexes rallied to all-time highs Thursday amid optimism over the economic recovery. The S&P 500’s retreat Friday halted a four-day rally that was fueled by improving economic data. A Labor Department report showed that jobless claims declined by more than forecast, boosting optimism. While the weekly jobless claims reading dropped this week, the four-week moving average rose from 343,800 up to 348,000 due to the 369k and 380k readings seen over the prior two weeks.  The current four-week moving average is now 43,000 above the post-recession low of 305,000 seen at the end of September.

The big push higher, though, has left the S&P 500 well above its 50-day moving average.  At more than two standard deviations above its 50-day, the S&P is actually the most overbought it has been since mid-May.  Investors celebrate 2013's big gains with more "buy" orders, but the market doesn't stay this extended forever.

Well as I said last week the U.S. markets have entered a parabolic buying frenzy. Talk about hopping on the bandwagon.  In the latest weekly survey of investment adviser sentiment from Investors Intelligence, bears declined by 32% from 23.1% down to 15.7%.  Going back to 1975, there have now been just 16 other periods where bearish sentiment declined by more than 30% in a single week.  To understand what the fuss is about you can begin by looking at U.S. Industrial production figures. As you can see U.S. Industrial production mirrors the U.S. market, the better the economy the better the market.

As you can see the last 10 years the S&P 500 is right in step with the rise in production.

OK so this is all very nice, but I think some of the juiciest parts of the rally might be over. First off U.S. industrial production is often controlled by the Auto industry. Below is a graph of the recent action in Ford, Ford Motor Co. (F)’s prediction of stalled revenue growth and sliding profit in 2014 reflects the high cost of introducing models in the most-crowded new-car field since Alan Mulally joined the automaker. Ford had the biggest drop in more than two years yesterday after predicting a decline in pretax profit, citing fierce competition in a slower-growing U.S. market and the spending needed to preserve strong pricing with its car and truck lineup. The sober outlook underscores the challenges facing the eventual successor to Mulally, who is being considered for the top job at Microsoft Corp. 

Some indicators remain bullish and even look like there is more room to run. The Nasdaq summation index is looking positive. 

And the NYSE still has lots of stocks that could be over there 50 day moving average:

You can even see that the VIX is low but could be alright for a few more days or even weeks. But as you can see when the CCI (top of graph) is in the brown market trouble is not too far off. Remember when the VIX goes up it is a sign of fear and the market (bottom of graph) sells off. 

Also mildly concerning is the On Balance Volume is dropping below the market. On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. OBV was developed by Joe Granville and introduced in his 1963 book, Granville's New Key to Stock Market Profits. It was one of the first indicators to measure positive and negative volume flow. Chartists can look for divergences between OBV and price to predict price movements or use OBV to confirm price trends. So this drop off may be a sign that we are late in the run up. 

How to Play This Now
Well of course you stay long but you may want to take profits on some of your risky positions and look to open new positions in more stable plays. For example the financial services often do well late in a cycle and also now that interest rates are raising you might look at insurance companies. One leader in the industry to consider is highly advertised Possessive Insurance. 
Just check out this chart:

If you really want conservative look at drug maker Eli Lilly

Also as I mentioned last week the recent run up in the Baltic Dry Ship index points to renewed demand for iron or and commodities in general in China. Look at the recent bounce in the commodity index.

and so we have seen in Canada a renewed interest in mining related stocks. Leading that pack is Teck resources who is also benefiting from the recent bounce in the commodity space. You might like this post from the motley fool.  

So harvest a few partial profits on your high beta plays, (for example these) set your trailing stops a tad tighter, move in to staples and broad ETF assets and remember trees don't grow to the sky.

Since I am at the Cancun Airport tonight surrounded by airplanes I thought you might like this interesting tidbit courtesy of the Smithsonian Magazine. It shows how far you could travel from New York City in a day.


As 2014 approaches I would like to remind people that the world is basically a good place, most people have good intentions and that most people are better off (at least economically) now than ever before. The United Nations recently released a heartening update on its ‘millennium goals’ for the developing world, with many of its 2015 targets on the way to being met, or indeed already met. The target to halve the number of people living on less than US$1.25 per day was achieved in 2010; the proportion of undernourished people fell from 23% of the developing world in 1990-92 to under 15% in 2010-2012; more than 2 billion people gained access to improved sources of drinking water. The list goes on but suffice to say that never in history have so many people across the globe lived so comfortably. This reflects the fact that with global GDP set to exceed US$74 trillion this year, never has the world produced this much. Happy New Year . . .

Sunday, 22 December 2013

December 21 2013 – Weekend Market Comment

December 21 2013 – What can I say we are enjoying a fantastic Santa Clause Rally. All the charts look like clear sailing and no one has a negative thing to say. In short the markets at least in the USA are on a parabolic buying spree.

U.S. stocks rose, with the Standard & Poor’s 500 Index capping its biggest weekly gain since October, as data showing faster-than-estimated growth boosted confidence in the world’s largest economy.

The Standard & Poor’s/TSX Composite Index (SPTSX) increased 7.40 points, or less than 0.1 percent, to 13,399.60 at 4 p.m. in Toronto. That’s the highest level for the benchmark since Dec. 2 as it capped a gain for the week of 2.1 percent. The index trimmed earlier gains of as much as 0.8 percent in the final half-hour. Trading of stocks in the index was 75 percent higher than the 30-day average. Stronger-than-expected U.S. GDP is a positive for Canada and more so a positive for cyclical stocks like energy, materials and financials Energy and materials are creeping up and they weigh heavily on the indexes.

The NYSE new high low graph was looking fragile before the fed announcement, but now clearly the bull is back.

The NYSE above 50 day average graph is very positive and shows just how far this bull might run

Things are rosy on the NASDAQ as tech turns around and look poised for a run.

Of course the VIX is plunging. in reaction to the strength of the US economy. The VIX tumbling 12% after the Fed announcement. Prior to that, the VIX had risen mildly as traders took on "put" protection against their stock holdings. Those put positions were liquidated as the day went on and the VIX tumbled. That reflects a huge sigh of relief that the process of unwinding the five-year program of quantitative easing has finally begun. The fact that the tapering reflects stronger economic conditions has also made the modest Fed move easier to take. The markets like the fact that some of the uncertainty has finally been removed. The fact that the second half of December is usually strong also provides a tailwind for the stock market which should carry into the new year.

The YP primary sell is back in bull mode.

OK only one of my graphs are not in party mode, the green arrow graph is rather limp. This is because small caps are not leading the rally. That is very odd.

What Works Now
My top performing pick is Tripadvisor up almost 2% in a week

followed closely by CTSH

Also enjoying a nice week -- MasterCard

Dry Ships
Back in 2007 the darling stock was Dry Ships. As China consumed space on every cargo ship in the Atlantic the price of space rose. The befit went right to the shipping companies. Freight traders are hiring record numbers of iron-ore carriers in the spot market as mainland steel production expands at the fastest pace in three years, spurring the biggest rally in shipping rates since 2009. Daily rates for capesizes, each hauling about 160,000 tonnes, jumped to a 34 month high of USD 42,211 on September 25, according to the Baltic Exchange, which publishes shipping costs for more than 50 marine routes.

You can read all about it here in Benzinga. Also Bloomberg On Dec 17 had a great piece on the new demand from China.

As you can see from the graph DRYS is on a clear rebound

There are many implications for this, since the demand is from Iron Ore you might look at Canadian mining stocks, Shipping companies and even a potential rebound in Chinese equities. It could be 2006 all over again!

A Bit About 2014
The "presidential stock market cycle" says that stocks perform better or worse depending on the year of the president's term. The second year is the worst, and the third is the best, on average.

Specifically, since 1945, the second year of a president's term saw the S&P 500 gain 5.3% in price on average, versus 16.1% in the third, according to an analysis by S&P Capital IQ. No distinction is made between a president's first or second term. The clock simply starts over.

Of course, the figures are averages, so not all years follow the cycle in lock step. Still, the third year sees the index gain 88% of the time; the second year, only 59%. The second-year subpar performance is actually even worse for the first nine months of the year; losses average 0.5% then.

This is no new phenomenon. A 1992 analysis published in the Financial Analysts Journal compared the Dow Jones Industrial Average and the cycle from 1901 through 1990. That data also showed second years were subpar and third years best.

Looking at this graph, the vertical bars show the last six bottoms occurring in 1990, 1994, 1998, 2002, 2006, and 2010. Earlier four-year patterns (not shown here) occurred in 1970, 1974, 1982, and 1987 (the cycle skipped 1978 while 1987 was a year late). Most of those bottoms took place during the second half of those years (mainly around October), and have coincided with midterm congressional elections. Assuming the four-year pattern repeats, the next bottom is due in 2014 and most likely during the fourth quarter. 

But keep one thing in mind, all of this prior data was not in a period following the massive 2008 sell off. We are only now returning to a normal market. 

Merry Christmas to all

Sunday, 15 December 2013

December 14 2013 – Weekend Market Comment

December 14 2013 – I am in Cancun Mexico and there are lots of folks at the bar talking to me and I am writing my blog, what dedication.  So this will be short. Besides are you really going to get much of an intelligent comment (or good spelling) after my fourth cerveza. Last week I said that a one-day bounce is not a trend and well now you know why, it was only a one day bounce. However expect the market to drop to the lows of the first few day of Nov. S & P 1750 and bounce up for a Christmas rally. The whole thing should dovetail nicely with the up coming Fed meeting, I am expecting no change and the markets will love it. Of course we wait to be sure that bounce happens.

If your trading account allows a buy on stop order, (Bank of Montreal does so most brokers should) you might want to follow the market down with a buy on stop set at three times daily ATR. Then when the turn comes your in. What to buy is still most of the things I mentioned last week.

Everything looks weaker, here is the VIX:

and the NYSE high low is rolling over, often a sign of bigger trouble:

and the 50 day overbought says "could be time to buy soon":

From the files of "I told you so" Gold continues to sell off and DUST marches upward:

OK ladies 1 2 3 say "Traders Rock" . . .

Saturday, 7 December 2013

December 7 2013 - Weekend Market Comment

December 7 2013 – Well last week was going nicely according to plan -- gold continued to disintegrate, bond yield marched up to almost 4% and the markets sold off. Then Friday’s reports came out and we had a solid one-day bounce.  Of course a one day bounce is no reason to go back the truck up and load up on equities, we are still overbought here. But if this pattern continues into next week you may need to do some shopping.

For the week overall U.S. stocks ended their longest streak of weekly gains in a decade as data on economic growth and manufacturing stoked concern the Federal Reserve may reduce stimulus soon.

Equities rallied on the final session of the week, halting a five-day slide, as better-than-forecast jobs growth spurred speculation the economy may be strong enough to weather a potential reduction in Fed bond purchases.The 203,000 non-farm payrolls added in November showed an improving trend but in the view of many traders wasn't enough to push the Fed to slow its bond-buying program at the December meeting. Many Fed watchers expect it to start the process in March, though some say January is possible.

Stocks could be buoyant in the week ahead, helped by year-end seasonality—or maybe Santa. Traders expect to see a fairly merry market clear on through December now that the November jobs report is out of the way. Still there is a fed meeting in two weeks and taper talk is still around.

Vix that was my main concern -- is dropping back after a run up. So traders see a strong week ahead.

(as always click any graphic to enlarge) 

The YP primary sell has not a whiff of concern.

What is Doing Well Now:

In Canada this might be a great time to get a woody. Yes lumber prices are increasing and three picks to look at are West Fraser Timber, Canfor and Norbord.

Canfor Corporation For the quarter, the company reported total operating income of CAD 49.3 million against CAD 18.1 million a year ago. Sales were CAD 755.9 million against CAD 663.7 million a year ago. 

Canfor Corporation announced that it has agreed to form a 50/50 joint venture with Tangshan Caofeidian Wood Industry Co. Ltd. of China. There's no sign that China's appetite for lumber is waning despite its somewhat slower economic growth. About 30 per cent of Canadian production is currently exported to China, Japan and Korea, compared with just five to eight per cent in 2007. Canfor Corporation announced that the company will proceed with capital investments totaling approximately $36 million to improve efficiency and recovery in its Houston, British Columbia sawmill.

Of Course rails continue to ship Canadian timber and oil at records rates so look at Canadian Pacific and Stella Jones

Also picking up nicely Horizon North Logistics has had a great run.

In the USA things are going well for regional banks. Second derivative plays on finance  abound including McGraw Hill  that owns Moody’s a major debt rating agency, and Equifax a perpetual money maker .

As more Americans go back to work look to these three to benefit from a return to outsourcing.

First up the king of programming offshore Cognizant Solutions, over the years I have made a bundle on this stock.

Next up the Mexican maquiladora business is returning as Padro makes your new VW to compete with Detroit unions . The Mexican ETF EWW should do well.

And if you are not much for getting a Golf GTI then look at an Audi A6 or Porsche Cayenne by investing in deutschland -- EWG is the German ETF still doing well

U.S. Healthcare stocks are some of the best performers right now. Have a look at adding some NVS - Novartis, RHHBY - Rouche, BSX - Boston Scientific and HLS - Health South.

My Top picks in the USA are MA – MasterCard, McGraw Hill (see above) and Cognizant Solutions (see above) as unemployment continues to fall. Also buying the come back kid N - Netsuite, see below.

If you would rather market time some good stock in a pull back look at technology, including N - Netsuite, TRIP - Tripavisor, LNKD - Linkedin and RYAAY - Ryanair and my favorite dividend play Companhia Energetica de Minas Gerais Ticker CIG., yielding 17% ya baby!


It is December 7th Pearl Harbor Day, I plan to go out and get bombed. :)