Friday, 27 June 2014

June 28, 2014 – Weekend Market Comment

June 28, 2014 – The Dow and S&P 500 edged lower on Friday following a downbeat second-quarter forecast from DuPont, though consumer sentiment data helped support the market. Among the day's positives, U.S. consumer sentiment rose more than expected, according to the Thomson Reuters/University of Michigan's final June reading, though that follows weak reads on consumer spending and first-quarter economic activity earlier this week.

Trading volume, which has been below average in recent weeks, and saw heavy action going into the close as Russell Investments announces the final reconstitution of its indexes, affecting more than $5 trillion in assets.

After hitting a new high last week, the Russell 1000 iShares (IWB) was hit with sudden selling pressure on Tuesday afternoon. This reversal day certainly looked negative on an intraday chart, but it was not enough to affect the immediate uptrend, there was no downside follow through as IWB held above 109 the whole week. While the stock market may be vulnerable to a correction, selling pressure has been rather limited since mid April. At the very least, we need to see some follow through to Tuesday's reversal for proof that selling pressure is actually increasing.

Well let’s see where we are …. The Bull and Bear Lines tell us we are in a bull market, so no need to panic even in a pull back.

The Primary Sell Indicator is dropping but is still in positive territory, but clearly over confidence is fading.

The Green Arrows Graph is also fading and is telling us this is not a great time to put new equity money to work.  There is a new CME4PIF School on the Green Arrow Graph click here to read it.

The S&P 500 stocks above the 50 day average is showing that the bloom is off the rose. If we cross the 60% line expect a market pull back.

We can also see this in the cousin of this graph ... for the big firms on the NYSE now crossing below 80%.

The VIX continues to hover in the low range, you might consider picking up some low cost protection with VIX options or the VXX ETF. It is probably that the VIX can't keep dropping after looking at the above graphs, but don't go crazy here, buying VXX is a counter trend bet in a bull market, often unwise.

The days when the US market was way outperforming Canada are over --- as commodities again rise.
Here is Canada:

vs. American midcaps

What Works Now
Well I hope you followed my advice to pay safe in Canadian Banks like Bank of Nova Scotia

A good choice in the USA is my favorite Bank of New York Mellon, mentioned in my posts endlessly.

Tripadvisor continues to perform although it is now at a point of resistance. By the way at this time Tripadvisor in the last 90 days has been in the top 80% of stock performance on any US exchange.

Well July is here, there sure might be some fireworks this week! Have fun!

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Sunday, 22 June 2014

June 21, 2014 – Weekend Market Comment

June 21, 2014 – U.S. stocks rose on Friday, driving the Dow and the S&P 500 to close at record highs as the shares of 330 companies hit 52-week highs on the New York Stock Exchange. The S&P 500 scored its third record closing high in a row while the Dow surpassed its previous record close on June 10. The blue-chip index hit an all-time intraday high at 16,978.02, coming close to the 17,000 mark. For the week, the three major U.S. stock indexes rose 1 percent as investors brushed off geopolitical concerns about Iraq and focused on the Federal Reserve's comments indicating that it will keep interest rates low for a long period of time.

Canada's main stock index was little changed on Friday as a decline in shares of gold miners was offset by strength in the energy sector, which extended a solid run since the start of the year. Energy shares received a boost from the continuing conflict in Iraq, which fueled worries about oil supply in the region and helped push up the price of U.S. crude oil. The energy group has had the biggest influence on the market this year, gaining more than 23 percent. The Toronto Stock Exchange's S&P/TSX composite index is up about 11 percent so far in 2014. It hit an all-time closing high on Thursday and ended the week higher.

Because the benchmark S&P 500 has gained for six consecutive days, supporting a cautious view that a near-term correction may be inevitable. In fact the charts are just a begging for it lets see why:

Let start with this gem, it shows for the last few days what stocks are performing better or worse than the S & P 500.

Oh dear it looks like nothing good is going on here. The top leaders are materials and Energy. Why is that bad? Well it goes like this, the big money used to jump from equities to bonds, depending on what was doing well, if business was making a killing they would buy industrial companies and high tech firms, if that stunk they would park in safe government bonds and clip coupons until things were better. However there days bonds don't give much return so the new place to go when you are sure that trouble is coming is "STUFF". This stuff is the commodities like oil, gold, copper and so on. Another place you can hide is utilities, no matter how bad things go, people still need heat in their homes and power for the TV set and the fridge full of snacks. Well those three bars to the right that are doing well are utilities, materials and energy.

Another messy problem is there are are signs of inflation creeping in, read these links:
Fast food
Consumer prices
Car Prices

The problem goes like this, low interest rates stimulate the economy (go figure) but they can't stay low in an inflationary environment. The governments in the western world want to avoid two problems, 1) raising interest rates effectively increases the cost of carrying a deficit, a problem that can only be solved by raising taxes.  2) without carefully balancing the M4 money supply, taxes, inflation and growth -- the economy could fall in to the dreaded state of stagflation.

Of course if we are going to start another commodity super cycle we know who will benefit. Australia, Brazil and Canada. Of course this week the Canadian markets are up and so is the Northern peso, the Canadian dollar.

Of course the concerns should be in the charts, but in this case we are seeing the problem early.

The VIX looks very bullish

Yowsers the Primary Sell seldom goes this high

The NYSE % of stocks above the 50 day moving average looks very overbought.

The green arrow graph looks out of steam.

What Works Now
Well if Brazil is good and Utilities are good CIG is doing well

I still love Canadian banks like Bank of Nova Scotia finds innovative ways to build value. Other Canadain Banks take risks in over served US markets while BNS finds great new niches. For example Bank of Nova Scotia agreed to pay US$280 million for retailer Cencosud SA’s credit-card and consumer-loan operations in Chile to become the Latin American country’s third-largest card operator.  Scotiabank will buy 51 per cent of the financial-services unit and take over the entire loan portfolio, transferring an additional US$1.2 billion to Cencosud, the companies said in separate filings to Chile’s securities regulator.

Heck I even love Spanish banks -- I hope you followed me in to Santander recommended here May 24.

Interesting Reads
China has run out of ways to fake its bad results and the inept corrupt officials are starting to admit things are awful there. Read this great bit from Quartz.

China’s wobbly housing market isn’t the only thing dragging down growth—not by a long shot

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Saturday, 14 June 2014

June 14, 2014 – Weekend Market Comment

June 14, 2014 – Escalating violence in Iraq drove crude oil prices to nine-month highs on Friday while damping the appetite for risk, even as bullish news from the U.S. tech sector lifted shares on Wall Street and helped buoy stocks in global equity markets. Brent crude edged above $113 a barrel, up more than $4 this week, on concerns that an insurgency in Iraq could trigger civil war and eventually crimp oil exports. Iraq's most senior Shi'ite cleric urged his followers to take up arms to defend themselves against advancing Sunni militants, escalating a conflict that threatens civil war and a possible break-up of the country.

In short the markets were worried that the price of oil would act as a brake on the current rally. When consumers buy gas at higher prices they don't buy other stuff. Frankly if this news came two weeks ago the market would have shrugged it off. The real story is that this rally has been running since April 11th and running hard. Everyone can see the market is doing well, that means that even mom and pop are pouring money in to the market. Thus the market is overheated and we need to take a pause here. Lets face it once the dumb money is in, what’s left on the buy side? I have moved from high-risk stocks like Tripadvisor and L3 Communications leaving my stable full of cash and my lager positions in stodgy Canadian banks and pipelines that continue to march higher as the pros move towards safety along with me. Don’t get me wrong this is a bull market, that needs a rest, there is no need to panic.

Of course it is all in the charts. Lets look at the shift from Risk on the Risk Off. Here is our tool, a comparison of risky mid cap stock vs safe but boring dividend stocks. The Stochastic oscillator on the top of this graph tells you what to do -- when red is on top you bulls should pull in your horns!

You can also see from the blue histogram in the Green Arrow Graph that there easily could be another small  correction here. 

The New York Stock Exchange 50 day overbought line just ran up to the magic 80 line and is now retreating. In 2013 it probably would have gone to 90% but in this full valued Mehhh market market it is no surprise it could not pass 80%.

You also might like to look at it from the percentage of S&P 500 stocks above the 50 day average, this is often more obvious because of the flight to safety (the NYSE) in a risk off period. 

Our most damming indicator is the primary sell that passed in to near record territory, clearly over optimistic and rolling over a tad. By the way we have a new CME4PIF School all about the Primary Sell Indicator

The VIX is still way to optimistic but clearly it too is pulling back as traders find they can use cheep VIX options to cover some risk. The truth is that VIX is Wall Street's equivalent of a Rorschach test. What people think VIX means says more about those people than anything VIX might be telegraphing.

Investors actually are responding to the low VIX by calmly amassing positions that would increase in value if VIX surges higher, which could occur if the stock market falls from its lofty heights. This bearish trading contradicts recent articles and analysis contending VIX's low reading means investors are blithely ignoring risks. The hedging action shows the only thing VIX really means is that options prices are inexpensive. Puts and calls on many stocks are trading at the lowest levels on record. This fact has attracted far less attention than the more easily understood fact that VIX traded at its lowest level on Friday since the credit crisis.

Hence, many investors are buying inexpensive options to hedge historically high-priced stocks. Hedging action is heavy in bearish puts on the S&P 500 index and SPDR S&P 500 Trust (ticker: SPY ), the exchange-traded fund that tracks the big-cap benchmark.

But I said this is a short term pull back not a major sell off to confirm that lets look at two of our big picture tools Non-farm payroll and Industrial Production, these are lagging indicators but I never get too nervous if these are still positive

So there you have it, it looks like the bull is still here, BUT this is no time to be buying equities. 

OK Its a beautiful sunny day and I would love to talk about stocks with you all day but my convertible is begging me to take it for a spin. Happy Thoughts...

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Friday, 6 June 2014

June 7, 2014 – Weekend Market Comment

June 7, 2014 – This market is on fire. U.S. stocks furthered their record climb this week, with both the Dow Jones Industrial Average and S&P 500 in uncharted terrain, after the May jobs report showed slow but steady improvement in the labor market. In fact almost every sector from aggressive areas like Transportation, Consumer Discretionary and Technology to the safer bets like Utilities all hit new highs this week.

Market skeptics, of course, argue that complacency is again running high on Wall Street, which is worrisome. Citigroup, for example, says its proprietary sentiment tracker has moved further into the "euphoria" stage, which suggests investors are getting overconfident. And in another bad sign, Ned Davis Research says legal insider selling by corporate executives is on the rise, signalling that executives think their shares are fully valued. Of course you don't need experts to tell you this, you have got charts. Look at the VIX at a new record low.

Our Primary Sell Indicator is approaching a nosebleed. By the way we have a new CME4PIF School all about the Primary Sell Indicator.

The NYSE 50 day overbought shows you what percentage of stock on the NYSE are above their 50 day moving average. As you can see still room to go with only some 77% of big board stocks above their 50 day moving average.

Another sign that the market is healthy is a renewed interest in smaller cap stocks. As you can see that move has just begun.

Even if you pull way back and look at the markets since in 1960 the S&P 500 has not really gotten too far ahead of itself.

But lets face it, really all you can say is "boy things are going well". Now you must decide if you are counter-trend-player and pull back a bit here or a momentum player and stay all in. Well this week I did a little of both. This week I raised my trailing stops on L3 communications, Under Armour and Tripadvisor, both up some 20% in the last three weeks. I took some profits in L3 communications, but plan to get back in later yes you can thank me for a great week 121 to 125. I also moved into some stable banking stocks previously I bought Bank of New York Mellon -- BK and now I am also in Canadian Mortgage company MCAP -- MKP (with a great dividend 7%+) and added to my Bank of Nova Scotia -- BNS. There are a few reasons to look at lenders, first off they are lower volatility stocks so if this is too much exuberance you are safer and they have a nice dividend but interest rates are currently too low and that means that these firms will do well if rates start to rise and they probably will.  

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