Saturday, 25 January 2014

January 25, 2014 – Weekend Market Comment

January 25, 2014 – Well you know what I say, speculators are like cockroaches, turn the lights on and they all scramble. So on Thursday we got another whiff of just how unstable banking is in China, which is not news but Master of the Universe George Soros has been spreading interviews predicting catastrophe in China a house of cards built of borrowed money.

Soros’s concern, expressed in a column for ProjectSyndicate, is that the Communist Party’s renewed focus on economic growth is at odds with its commitment to structural reform. He also likens China’s financial condition to those in the US before the financial crisis.

Then at the World Economic Forum in Davos, Switzerland -- Blackrock CEO Laurence Fink warned there is “way too much optimism” in financial markets as he predicted repeats of the market turmoil that roiled investors this week. “The experience of the marketplace this past week is going to be indicative of this entire year -- we’re going to be in a world of much greater volatility.”

Also of concern was the next FOMC meeting when no surprise there will be more tapering. In any case there was little appetite to be long into the weekend.

Most US stocks got slammed; the Dow fells 300-plus points in worst week since 2011
U.S. stocks fell sharply and Treasuries rallied on Friday, with the Dow Jones Industrial Average tumbling triple-digits for a second session and posting its worst week since November 2011, as investors pulled money from emerging markets and other assets viewed as risky.

The Nasdaq Composite  lost 90.70 points, or 2.2%, to 4,128.17 and registered a weekly loss of 1.7% after two weeks of gains. On Friday, the tech-heavy index reversed its early 2014 gains and is now down 1.2% since the start of the year.




The CBOE Volatility Index, known as the VIX, surged 32%, its steepest rise since the April 15 Boston Marathon bombings.

The real sell-off this week was in the Chinese markets and emerging market currencies. The FXI ETF plunged over 5%.

By the way there is an inverse ETF to FXI called FXP -- could be a great play if the loss of faith continues. 


On the other hand if you pull back and look at the last two years for the DOW the real question is why this did not happen sooner.

Well the answer is the markets are fundamentally strong -- the American economy is enjoying what I called last May, the New Momentum. Typically February is a lackluster month, and we are overbought, so a correction is not only likely it is important to keep markets healthy. So how far will this correction go? well who knows, nobody looks too spooked just yet. Arthur Hill has pointed out some interesting levels, I have drawn them here in three purple lines, the highest line is a 5% pull back, a bounce off the 200 day moving average is 7% and if the Dow gets down around prior support of 14720 it will be a 10% pull back. 

Nothing says the "Buy the Dippers" will not come roaring back Monday, but there was a few "tells" that foreshadowed the correction and they don't look promising. Utilities have been more active recently and the TLT treasury ETF has done well recently

Treasuries are up:

2014 is almost certainly not going to be the license to print money 2013 was, trees do not grow to the sky. Also there is the warning I gave you about "Presidential Cycle" theory that does not favor 2014.

If you followed my advice last week: " Lower your risk, raise your stops and hope for a continuation". The lowest risk position is cash and I am now 50% in cash. I also have 3ATR stops on my positions or some cases percentage trailing stop - for my long term positions. I was able to sleep through the sell off and my worst hit position "TripAdvisor", sold early in the correction. 

Now that you are flush with cash, wait for the correction, and buy all the bargains. For example the list I published last week. May be some bargains to buy after the pullback.  

But of course we don't catch "falling knives" wait for a confirmed bounce. 






Saturday, 18 January 2014

January 18, 2014 – Weekend Market Comment

January 18, 2014 – The Standard & Poor’s 500 Index fell for the week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.
The S&P 500 (SPX) declined 0.2 percent to 1,838.70 for the five-day period. The Dow Jones Industrial Average gained 21.51 points, or 0.1 percent, to 16,458.56 for the week. Twenty-eight companies in the S&P 500 including Goldman Sachs Group Inc. and Bank of America Corp. reported quarterly earnings during the week. Out of the 52 companies in the gauge that have posted fourth-quarter results so far, 62 percent have exceeded analysts’ profit estimates, and 63 percent have topped revenue projections, according to data compiled by Bloomberg. Equities also fell during the week amid concern over valuations. The S&P 500 trades at 15.6 times the estimated earnings of its members, near the highest level since 2009 and more than the five-year average multiple of 14.1

For investors who were looking for a repeat of 2013, 2014 has not gotten off to a very good start.  Yes, the slow start has been a bit disconcerting, but when you compare the performance of the DJIA since the start of December to its performance from December through January over the last twenty years, the current pattern is nearly a carbon copy of the 'typical' pattern.  If the pattern continues, look for continued weakness through next week before a rebound to close out the month.

Although the market is at overbought levels and the pace has slowed since December there still seems to be upward momentum, the same thing I have been saying for three week -- overbought but nothing to say it can not continue.  Monday the market sold off but Tuesday it bounced right back as the buy the dippers did their best to shrug it off. Thursday was option expiration a day known for volatility, but no, the markets were calm and even up slightly.  Over the last few weeks small caps continue to outperform large caps and offensive sectors are at all time highs, but defensive stocks are lagging. However on Thursday and Friday there was a turn in the Utilities index (XLU red line below), so this could be the end of an offensive run.
(as always click any graphic to enlarge)

The NYSE market forces still are looking hopeful.


The Primary sell shows that the pros are not as euphoric as last week, but the thing with this indicator is that any reading above 1 still shows the majority is long so this really is not a warning -- yet.

The NASDAQ summation index marches higher after a small stumble.


The NYSE is not making much headway, as less than 70% of listed equities are above their 50 day average.


The VIX continues to look more confident -- but it has hit the point where it did turn before.



What Works Now
Here are five equities with great upside potential that have continued to make new highs.

Netsuite
Investors would be hard press to find as much of a long-term winner as the company Larry Ellison founded, Oracle. Now Wall Street is hoping for lightning to strike twice. NetSuite, co-founded by Ellison in 1998 to deliver business apps via a software-as-a-service model. The company hopes to invade the lucrative market in CRM that salesforce.com dominates and taking on SAP in accounting.

NetSuite can be a much more affordable option for customers compared with licensed software, since they simply pay for a one-year subscription for software NetSuite hosts and delivers over the Internet. But what's good for the goose isn't always good for the gander. With traditional licensed software, customers may pay thousands or millions of dollars up front, which the vendor can funnel into sales and marketing costs, personnel costs, or even research and development. In the SaaS model, the revenue trickles in at a much slower rate, and is often out-paced by operational costs.

So far, demand has grown steadily for NetSuite's SaaS offerings of such things as accounting, payroll, order management, and customer-relationship management software. Its sales grew from $3 million in 2002 to $67.2 million in 2006, up 85% over 2005. Revenues for the first nine months of this year were $76.8 million, up 63%. Yet, NetSuite has never posted a profit. It had a net loss of $35.7 million for 2006 and $20.6 million for the first nine months of this year, and as of Sept. 30 it had an accumulated deficit of $241.6 million. Even SaaS's pioneer and most successful company in the area, Salesforce.com, exists on small profit margins as it approaches an annual revenue run rate of $1 billion.

Regeneron Pharmaceuticals
Regeneron (REGN) shares could see a big jump in 2014. The big promise in the year is with respect to expansion of its eye treatment product, Eylea. Analysts expect the company to grow profits by more than 50% in 2014. At current prices shares trade for 54 times 2014 estimated earnings. That’s a rich premium, but not nosebleed compared to some momentum stocks. The real potential for growth to be even larger than expected is what turns on the momentum ground and as other rocket ships come back to earth look for this one to keep on climbing.



KYTHERA Biopharmaceuticals, Inc.,
Kythera is a biopharmaceutical company, focuses on the discovery, development, and commercialization of prescription products for the aesthetic medicine market. Its product candidate, ATX-101, is an injectable drug in Phase III clinical development for the reduction of submental fat. The company also has various additional research programs around therapeutic intervention for hair loss; and maintains active research interest in hair and fat biology, pigmentation modulation, and facial contouring.

If that is not exciting enough, this stock often moves 5% in a day, like it did most days this week.


And two picks from Canada:

NuVista Energy
NuVista a play on the increasing price of Natural gas. NuVista believes that decreasing costs coupled with improved well performance will help it improve the economics of its Montney play. The recent drilling results look encouraging – the nine latest wells in that area show an average IP-30 of 1226 boepd (31% condensate). However, the total cost per well remains high at around $8 million.

Rock Energy
A junior Oil and Gas play boasting a clean balance sheet with minimal debt, A development drilling inventory of 4-5 years (over 100 locations) at current drilling rates.



How to Play This
Well of course its late in the party. Historically February is not a great month,  ending on an up-note about 53% of the time, but March and April are up about 75% of the time. I continue to advocate play it safe and buy after a pull back. Still there is nothing compelling to say sell now. Lower your risk, raise your stops and hope for a continuation.

What Happening Next Week
Yawn - the World Economic Forum’s annual meeting gets underway Wednesday in Davos and runs through Saturday. Expect a lot of talk of deflation fears, the Yellen Fed, China, income inequality, Europe’s still-troubled banks, and a steady flow of snark and indignation.


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It may be cold in the Upper Midwest, but folks in Madison, Wis., don't feel like cuddling. The Snuggle House has closed its doors, according to its Facebook page.

The business, owned by former health supplements salesman Matthew Hurtado, was only three weeks old. The entire enterprise had a hard time getting off the ground. Its planned opening in October was delayed a month as city officials tried to get their arms around the idea. Some locals were reportedly concerned the business could be a front for prostitution.

During the delay, The Snuggle House put up a website offering "therapeutic cuddling" for $60 an hour.

It profiled its staff, including one man, Lonnie, a long-maned former camp counselor. Here's his video. "He had 300 to 400 applications before they opened," said Hurtado's attorney, Timothy Casper.

Finally, an occupancy permit was granted, and local Councilman Mike Verveer said he received no complaints. The sudden closing surprised him. "My guess would probably be that they just didn't have the business that they anticipated," he said.


Sunday, 12 January 2014

January 12, 2013 – Weekend Market Comment

January 12, 2013 – Not a lot has changed from last week. U.S. stock finished mixed on Friday, with Wall Street not certain how much credence to give a dismal December-payrolls report, given just how far a field it was from expectations as well as other economic reports that have signaled an improving labor market. The Labor Department reported that non-farm payrolls increased 74,000 for the month of December, which was well below expectations and the lowest reading in almost three years. While clearly a disappointment as far as the labor market is concerned, keep in mind that this number is subject to revision and represents just one month.

Other recent economic data have painted a picture of a U.S. economy that is steadily improving. Exports hit a record level in November, lowering the U.S. trade deficit; businesses have ordered more manufactured goods and auto sales reached a six-year high in 2013. Analysts now estimate that the U.S. economy expanded at a healthy annual rate of three to 3.5% in the October-December quarter, up from earlier forecasts of a rate of 2% or less.

The Toronto stock market closed with a solid advance Friday, with strong gains from the gold sector as bullion prices advanced amid disappointing jobs data in both Canada and the United States.(more about gold below).

But really the reaction was not that great, in fact if you the charts, the S & P gained almost 10% since the fall of 2013, you know that cannot go on forever. So we find ourselves in consolidation. A sideways move that is neither positive or negative. Where we go from here is largely based on earnings season. We have so many earnings, especially financials, coming out next week, so Monday morning, that will the the topic. Financials will be the bellwether for how the earnings season is going to go. 

A Classic Consolidation
So after an amazing bull run the market takes a pause to see what earnings season will bring. Notice the TSI at the top of the graph squeezed sideways. Below the RSI is the Aroon indicator, notice both he red and green are dropping.


A Time of Strong Optimism.
We can see from VIX and the Primary  Sell Indicator that the pros are full invested. The bull has run hard. Again the indicators say, it is not likely to go much higher without a rest or a small pull back.




As I said before it is nice to see that OBV is not lagging like it looked like it was going to.




Also good news from Ford as it has a nice recovery bounce, as a said a few weeks ago a week auto sector is a danger sign.




NYSE High Low still looks strong, but the SPY version of this graph is not as strong. Logical, in times of indecision/consolidation move to the big stable guys,



The 50 day over bought shows that a new group of stocks is getting attention, again the bigger more stable plays the were out of favour in the run up. 



Gold
I was asked this week about gold, and yes it is true gold hit a nice double bottom about 1145. Yeah I saw that, but as I said before this is the crowd that believes in the magic limit at the new cost of production. Frankly I expect a typical sucker bounce until the end of January, followed by another HSBC vault dump of physical gold and down we go again, but there should be no “triple bounce”. Why the end of January? I expect this to coincide with more Federal Reserve tapering.


In any case look at this graph and tell me you are eager to risk your money on this investment?


Holly Break-Out Batman
Intercept Pharmaceuticals (ICPT_) is up 517% over the past two days. Dr. Yaron Weber, who leads Citigroup's biotech research team, said ICPT's obeticholic acid was so successful in its treatment of the chronic liver disease nonalcoholic steatohepapatitis that its trials were stopped early. He added that even his own sales estimates are considered conservative if the drug comes to market. Currently, he predicts sales of roughly $4 billion, making ICPT a potential merger candidate.



What Works Now
John Murphy pointed out that stocks tied to bonds also had a strong day on Friday. They include bond proxies like utilities and REITS. Homebuilders also had a strong day, as did dividend-paying stocks. So did gold and other precious metals. All had been hurt during 2013 by rising bond yields. Friday's action may have been an over-reaction to one month's report (most likely influenced by bad December weather). Portfolio rebalancing may have also played a role. Some money managers are suggesting, however, that some money earmarked for bonds might be better placed in stock categories tied to bonds. The reasoning is that "bond proxies" offer the possibility of capital appreciation if stocks continue to rally. Since those groups were underperformers during 2013, they may offer better value at current levels, and some protection against an over-extended stock market that is entering a dangerous year.

This is exactly why last week I said it was time to play dividend plays like DVY also large cap low beta stocks and of course broad market large cap ETFs like DIA. It still a bull just right now a little tired.

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This is what the Dallas Cowboys cheerleaders do on their spare time it seems.



Saturday, 4 January 2014

January 4 2014 – Weekend Market Comment

January 4 2014 - The Standard & Poor’s 500 Index (SPX) fell for the week as investors sold shares after the biggest annual gain in more than a decade, as an improving economy heightened concern about the Federal Reserve's schedule for ending stimulus. The S&P 500 declined 0.5 percent to 1,831.37 in the holiday-shortened week, after completing 2013 with a 30 percent gain, the most since 1997. The Dow (INDU) Jones Industrial Average lost 8.42 points, or 0.1 percent, to 16,469.99 for the week. The U.S. market was closed Jan. 1 for the New Year’s holiday. The S&P 500, which finished last year at an all-time high, sank the most in three weeks on Jan. 2, snapping a streak of rallies on the first session of the year since 2009. The Dow average climbed 27 percent in 2013 for its best performance since 1995.


The S&P 500 remains in a strong uptrend and is now nearing the upper trend line of a twenty-six month channel. First and foremost, there is no sign of a major top on this chart, or any other major index chart for that matter. The Dow, Nasdaq 100, S&P 500, S&P MidCap 400 and S&P SmallCap 600 all hit new highs in late December. Tops often take months to form and we have yet to see a lower peak, a double top or a head-and-shoulders top. The only potential negative is the short-term overbought condition. This however, is a relatively benign problem because overbought is actually a sign of strength. After all, it takes strong buying pressure to push indicators into overbought territory.

CNBCs Art Cashin had a prophetic warning for January that fits well with the way the carts are going, a small correction mid month would be classic and helpful for this overheated market.

So what does overbought look like. Here is the Long Term Bull Bear Lines, notice how the light gree 4 day moving average has gotten far ahead of the 50 day average. Generally it can not keep that distance more than 90 days. 



Te NYSE High Low graph has not had a line cross in many months, clear skys ahead on a steady uptrend.


So lets see what the so called "Smart Money" is thinking. The Primary sell indicator show an extreme positive reading showing a lot of (over?) confidence.


The VIX looks like it is not sure what to do next . . .  Notice the SPY graph at the bottom, it is colored by a system called the Elder impulse system, the blue bars indicate a weaker market. Weaker does not mean "done for" it is more like indecision. 


Last week I showed you how OBV can be used to predict weakness and the week was a soft market.

Here is an interesting indicator in the Stochastic at the top reaches this zone it is time to switch from aggressive to defensive investments. 


Here is an interesting gem. Below is a look at how sector weightings have changed over the last 23 years going back to 1990.  The ebb and flow is pretty interesting. As you can see the tech bubble burst on 2000, materials have not been as important since 2000 and banks have recovered since the financial meltdown of 2007


How to Play This
Same advice as last week rotate into low beta stable equities and broad ETF. raise your trailing stops

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This graphic show all the tweets about New Year's resolutions in the last two weeks and show us everything we're constantly trying to improve: our bodies, our jobs, and our minds.

We start every new year with the feeling of a clean slate, a time that we can set our goals and intentions and actually make the changes we want to see in our lives, to get rid of those nagging bad habits and usher in some good ones. But by February, many of our resolutions are already abandoned or forgotten. So why do we struggle so much to follow through with the resolutions we set for ourselves? You can read all about it setting New Year Goals Here