Saturday, 31 May 2014

May 31, 2014 – Weekend Market Comment

May 31, 2014 -- Three days in a row the S&P 500 hit a new recorded intraday high this week. The quiet trading days of late May could fade fast as markets brace for two major events towering at the end of the week—a rate cut in Europe and the U.S. monthly jobs report.

The European Central Bank European is widely expected to cut its deposit rate, putting it into negative territory for the first time, and take actions to promote small business lending. The ECB has been signalling that it could take action, including in comments from Mario Draghi, ECB's president, who set the table for a move following the last rate meeting. There is a heavy calendar of economic reports in the U.S., the most important of which is Friday's May employment report. Economists expect job creation to have slowed from April's 288,000 nonfarm payrolls but still come in above 200,000. We are almost back to pre crash employment levels.

While there are few earnings reports, Apple promises to grab headlines when its Worldwide Developers conference starts Monday and when its stock splits 7-for-1 later in the week.

It would appear that the reversal in the bond market was above internal technicals. It had gotten a little overbought at the point . But there were also some very mild whiffs of inflation beginning to appear, and if you look there was strength in the TIPS bonds—the inflation-protected bonds. The resulting lift of the stock market was based on signals that the Federal Reserve's efforts to reach 2 percent inflation might be working, and that the economy had "gotten past the stall speed." Inflation increased 1.6 percent in April from a year ago still as long as inflation stays under 2% we really don’t have a big issue because mild inflation is good for the economy (see my blog: Inflation What Inflation).

So moderate inflation, full employment, strong market, strong dollar, why own gold? This time we are going for a triple bottom test, trust me it could break out below very easily. Silver is on the express to hell and if corrupt Chinese officials would stop stuffing their mattresses with gold bars .... well who knows how low it will go.

I suggest you read last weeks posting and just know that the optimistic scenarios are playing out, the market is heading more risk on.  One of the things that had me worried last week is the primary sell indicator had bottomed, without a up turn here there can be no long term bounce because this indicators shows you what the professionals are doing and right now they are scrambling to get back in.

The Green Arrows graph is looking better and correctly forecast the recovery.

Risk is clearly back on as the NSADAQ summation index recovers from a major drop.

If you are a DOW theory person you will be delight to see the transportation index is firing on all cylinders in a steady recovery since mid April, to illustrate the point I put MACD on top of the graph. 

The NYSE New highs and the NYSE 50 day overbought show that the market recovery is strong and not just in the high tech world. 

Ahh the goldilocks market as all fear ebbs away and the VIX explores new levels of confidence. Yowsers!

In may last posting I gave you a ton of good ideas to go try, for those of you who followed me in to Tripadvisor your wallet is much fatter this week. 

If the NASDAQ is back then buy the masters of the universe Google. Looks like a bounce up to me. . . 

L3 Communication continues to make big bucks on the new paranoid America, providing full body airport scanners and more traditional security x-ray machines.

Also probably headed for a breakout is Assurant Inc. This Insurance company has a good management team and a nice dividend yielding 1.5% It looks like it is doing well with its new acquisitions in Mexico and 5 other Latin American countries. You will not get rich on this one but it is steady-freddy. 

Well there you go.... this be your classic bull market, enjoy but don't forget, trees don't grow to the sky... but at least for this week, the party is on!

Read My Disclaimer Here

Saturday, 24 May 2014

May 24, 2014 – Weekend Market Comment

May 24, 2014 - The S&P 500 is up 1.2 percent in the past two days. I know, big deal, but believe it or not it's the best two-day rally since April 15-16. Pretty meager, eh? That's why I called 2014 "the Mehh year" this morning. Up one day, down the next, and mostly in a very narrow trading range, even on an intraday basis. And in the last month, volume has been lighter than usual on most days.

So what's the rest of the summer going to look like? Remember what has been holding back markets this year: 1) choppy economic data, partly weather induced, 2) emerging market concerns, and 3) global tensions, largely Ukraine-Russia.  But there is some reason for optimism. Russia/Ukraine tensions have eased for the moment.

Friday, the iShares Emerging Market ETF (EEM) is closed at its highest level since October. It's up 3.1 percent this year, outperforming the S&P 500's 2.5 percent gain. That brings us back to the choppy economic data. Earnings were hardly inspiring for the first quarter, up roughly 3.3 percent. But even here there is some reason for optimism: Q2 revisions have been fairly mild, with the exception of a few retailers. So what? That is a sign that CEOs are not anticipating a disaster. And don't make light of a two-day rally. The S&P is sitting right near its historic closing high of 1897. The point:  risk is back on for now because markets go higher when there is nothing holding them back and right now no news is good news. I would expect a rotation to more risky offshore ventures and to a bounce in the Nasdaq and smaller cap issues in the USA. 

Remember This
This is a bull market, yes it is a bit long in the tooth at 5 years running but it is also following on the heals of the worst sell off in our lifetime. Here is the first chart I always look at... the long term bull and bear lines, you can learn about in my school posting here.

(as always click any graphic to see it bigger)

Dark green is above red, you should be long, then you must decide on a ratio of high risk and safe low volatility and cash. Part of what controls the mix is your age and risk tolerance. 

For example if you followed me in a few weeks ago... you bought more IPL and more Tripadvisor. both are great companies and both have fool proof ways to make money. Tripadvisor has the better future but it will be bumpy. But on this last round both equities are up almost 10% in two weeks, of course that easy in Tripadvisor but you know you are getting a gift with IPL no pipeline stock can do that forever. 

So what is the market seeing that is bringing back risk.... well of course it is all in the charts. 

First off the NYSE continues to climb unabated as we can see in the NYSE market forces:

We also see a bounce coming in the number of NYSE  stocks over their 50 day moving average.

The aggressive defensive graph is showing a clear bounce in to risk on.

And we are in the midst of a green arrow signal, admittedly a little lack luster, but that's part of the first quarter Mehhh market. 

On Balance volume still is keeping up, but this indicator can turn on a dime. 

Probably the best sign of a return to US Risk on trade is the hopeful bottoming pattern showing up in the NASDAQ summation index. If this is for real expect Biotech and smaller cap firms to do well.

A Cautionary Tail
OK it would not be me if I did not say that things are not all perfect, but what I see as a problem is mostly in the camp of too good to last. We can see that we have an off combination here. First off the primary sell indicator is at rock bottom. If you are a optimist you will say it is all about to turn around, if your a pessimist (or a revision to the mean trader) this is giving you a funny feeling ...

Then you look at the VIX and you say... hmmm 11? That looks way to optimistic. 

But signals that things are too good can go on a long time, the saying is, the market can be irrational longer than you can be solvent. So I would not bet against this market.

What Works Now
Well a few things are working well right now, Transportation, Energy, Biotech, Internet and Financials. If you are going Risk On buy that list if you are wary of the market then look to financials and Canadian pipelines. 

Transportation firms according to the DOW theory always leads a recovery. CP rail has certainly been a market darling.

If the US recovery is stronger than expected look at Idia's offshore outsourcing giant Cognizant Technology

Iron Mountain is a great company that got hit hard when it's tax strategy got a thumbs down from the IRS. Time to forget that and enjoy the fat profits they make.

Emerging markets lead in a recovery and you might have followed me in to Brazil's top power company CIG

Biotech/Pharmaceutical is a risk on area, leaders in this space include Alexion and Celgene

Energy has done very well so far but can it continue. Here is Gibson Energy and a funny play on energy ... oil field trailer company Horizon North Logistics. 

If you really want to be out on a could bet the US consumer is coming back to life and play Under Armour. 

Lower Risk Ideas
So you look at the VIX graph and worry the party might be over sooner than people expect? OK consider financials, they tend to sell off less at the end of a cycle. Here is Bank of New York Mellon, Visa and Spain's number one bank Santander.

Read My Disclaimer Here

Saturday, 17 May 2014

May 17, 2014 – Weekend Market Comment

May 17, 2014 – The broader stock market sold off Thursday as a result of hedge fund manager David Tepper's comments during the SALT Conference in Las Vegas. He said Wednesday he was not bearish on stocks but was more cautious last year. He likes tech stocks such as Google and and has lowered his equities stake to 60% from 100% in 2013. David Tepper, who made the most money of any hedge fund manager in 2013 at $3.5 billion, believes investors better approach the market with more caution now. "I'm not saying go short, I'm just saying don't be too fricking long right now," the head of Appaloosa Management told a few thousand of his colleagues Wednesday at SkyBridge Capital's SALT 2014 conference in Las Vegas. Among his concerns are a deflationary environment, weaker-than-expected U.S. growth and a European Central Bank (ECB) that badly needs to ease monetary policy. The selloff was very broad on Thursday and hit pretty much every sector. But there never seemed to be a lot of "panic," with the CBOE VIX staying relatively calm given its incredibly low level at the start of the session. The bond market seems afraid of deflation, noting that Treasury yields fell again on Thursday.

The thing is that volatility is rising, but investors are not buying protection -- well not yet. The VIX is near the low end of it's cycle and the broad market (Russell 2000)  is off 10% that tells you either there is a lot of confidence that buyers are about to come in, or that the normal summer sell of is coming. What do you think after looking at the graph below? Yeah me too.

This is yet another sign of what is being to be known as the ”Mehhh market” if you don’t have a teenager you may not no the term as the new “what-ever” that the 90’s kids used in other words, a bland mixture of apathy almost bordering on disdain. So here we are again saying, the markets are up more than 35% in 2013 and trees don’t grow to the sky and so we are entering a period of consolidation. I warned you a few weeks ago that about the 15th of May was options expiration and things would sell off about then. Now we are down about 10% on the broad market this year but only about 1% for the S&P 500 big stocks. The problem is its May and no one is excited trading in the summer but on the other hand there is this big problem of no place to hide since bond yields stink. Also their really is no major calamity to spook investors and well ya throw up your hands and say Mehhh! The wisdom so far is park it in the big equities and hope there is no panic to get out.

So the market is not dropping – Mr Tepper say don’t go short. Cash is a position and I along with Mr. Tepper have some in cash but that still begs the question what other possibilities are out there? For those of you who know me I would suggest some big dividend earners like Canadian pipelines and banks. Yes there are some stocks with better dividend returns but usually with more risk and this is not a time for making a killing this is a time not to get killed. 

One place to look for yield is intentional monopolies like Brazil's power company Companhia Energetica that trades on the new York exchange under the symbol CIG. This $7 stock has a $0.80 dividend giving it a yield of 5%.

Canadian Banks are always bullet proof, here is my favorite Bank of Nova Scotia. Yields just shy of 4%.

Power Financial is a long time stalwart in the Canadian financial industry, also yielding just over 4%.

Canadian railroads are some of the top performing equities this month, here is CP

If you want to stay with US equities look at firms with strong cash flow and few competitors like Iron Mountain symbol IRM on the NYSE

Advertising Juggernaut Progressive Insurance is building a brand as strong as Citi Group and cleaning up in the US auto insurance market. 

I have been waiting forever for the market to see the upside of Rackspace and finally it did this week as better than expected earnings surprised. 

So it is May why fight it, I am taking out the sailboat and trying to save my tan from my winter in Belize. Have some fun with the market... but don't hang your butt out too far.  :)