Sunday, 31 August 2014

August 30, 2014 – Weekend Market Comment

August 30, 2014 – U.S. stocks rose on Friday, lifting the S&P 500 to another record finish, as investors welcomed a better-than-expected read on U.S. consumer confidence and bypassed geopolitical worries. The bullish sentiment continues to build; August started out as an ugly month, but will close out with real gains.

Trading in a 75-point range on either side of neutral, the Dow Jones Industrial Average rose 18.88 points, or 0.1 percent, to 17,098.45, gaining 0.6 percent for the week and 3.2 percent in August. Up 0.8 percent from a week ago and 3.8 percent for the month, the S&P 500 rose 6.63 points, or 0.3 percent, to 2003.37, with financials the best performing and industrials faring the worst of its 10 major industry groups. The Nasdaq gained 22.58 points, or 0.5 percent, to 4,580.27, up 0.9 percent for the week and 4.8 percent for August. For every stock that fell, more than two rose on the New York Stock Exchange, where almost 617 million shares traded. Composite volume neared 2.3 billion shares.

The real question is... is this the end of the run up with the S & P 500 at a new record or do we continue from here? Well for starters global news this week was less than happy, with Russia and Iraq dominating the headlines, still the market did not run and hide. To me that generally shows resilience and that the market is being run but what is known as "strong hands" -- in other words the pros are buying.  

The CBOE Volatility Index, a measure of investor uncertainty, dropped 0.6 percent to 11.98.

The Primary Sell has skirted the zero line and probably wants to turn up.

Another sign of good things going on is On Balance Volume in a up trend and following the market.

The Nasdaq Summation index is a lagging indicator but look positive

Just remember, Septembers is coming and the pros are getting back to their desks this can be a volatile as portfolios are adjusted and exchange volume increases. We also have another 911 anniversary to deal with. You can read more about ups and downs in September here.

I am going to be brief this week since I am just back from sailing in Desolation Sound

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

Saturday, 23 August 2014

August 23, 2014 – Weekend Market Comment

August 23, 2014 – U.S. stocks mostly fell on Friday, with the S&P 500 halting a four-session win streak that lifted it to a record, as investors weighed rising tension between Russia and Ukraine and speeches by European Central Bank President Mario Draghi and Federal Reserve Chair Janet Yellen.  Both central bankers gave the market what was expected, with Yellen reiterating that slack remains in the U.S. labor market even as the American economy continues a five-year recovery and Draghi expressing confidence that stimulus already announced and a weaker euro would help the euro-zone economy, but the ECB is ready to do more if needed.

The Dow Jones Industrial Average shed 38.27 points, or 0.2 percent, to 17,001.22, leaving it 2 percent higher for the week. The Nasdaq added 6.45 points, or 0.2 percent, to, 4,538.55, up 1.7 percent from the week earlier. For every five stocks rising, less than nine declined on the New York Stock Exchange, where 521 million shares traded. Composite volume neared 2.3 billion.

So as we can see a classic bounce week, I hope you were all listening last week when we got a green arrow, or for the more daring two weeks ago as we hit the normal edge of the range on the Primary Sell Indicator. In any case that bounce last week was very profitable. Even the consumer stocks that were lagging caught fire last week. 

So  looking at the big picture the bull bear lines, no surprise are still bullish.

Primary Sell and Vix tell us the pros are jumping back in - risk on!

and so on . . . 

What Works Now
Well in my post on Aug 16 I recommended a few stocks, lets see how we did.

A solid win at Iron Mountain

 Nothing but blue skys in the travel world of Expedia and TripAdvisor

Medical/Pharma stocks are feeling well - Canadian medical company CRH Medical corp.

Gilead is my top pharma pick, nice week!

More Picks
If you want some more suggestions consider these:

My favorite Canadian Bank Bank of Nova Scotia 

The two big tech heavy weights Google class C and Apple

King of the Canadian Oil sands Suncor

My favorite U.S. Bank in ticker BK, the Bank of New York Mellon which I bought more of this week.

Finally if you just want to be in the US equity market with stable steady returns consider SDY or DVY that's an ETF that invests in dividend paying stocks. I bought some more this week with some of my profits. I also bought the Canadian cousin CDZ that buys in dividend payers in Canada with a long history of raising dividends. 

In the News
The Economist pointed out that America still leads the world in many areas, like this graph of  police shootings. :(

Sunday, 17 August 2014

August 16, 2014 – Weekend Market Comment

August 16, 2014 – U.S. stocks ended the week mixed in below-average trade volume after news of fresh conflict between Russia and Ukraine.

Early Friday, the major indices plunged, losing morning gains with only the Nasdaq climbing back into positive territory in the close for its best week since May. The Dow also recorded its best weekly gain in five weeks, despite closing lower for the day. With a flat close, the S&P 500 had its best weekly gain since July 3. The big stocks are on edge, early Friday the Dow Jones Industrial Average lost most of its gains for the year as it dropped more than 130 points following the news, with Boeing among the hardest hit and Coca-Cola retaining the lead for blue-chip advancers. The swings of the market on both sides are over-exaggerated due to low volume. We're just seeing a market that's worried about it but yet not falling apart at the same time.

Well last week you read that my leading indicators looked like the were turning around and that continued this week. The Good News is we have a brand new shine Green arrow on my famous green arrow graph. Looks like it time to jump in the market!

We are also seeing fear disappear from the professionals here are the VIX and the Primary Sell Indicator. These give us a view of what the pros are up to. 

the Primary Sell chart says well its early but it is looking like the trend has begun . . . 

Other indicators show that things are doing better on the high tech and high beta stock world. Here we look at two ETFs one very volatile and one super stable. For high beta I use the juiced mid-cap 400 ETF symbol MVV this we compare with the steady dividend players in the DVY fund. This graph says, risk is back on!

Even though the NASDAQ and the smaller cap stocks are way ahead of the big NYSE stocks, there is good news on the big board too, as the high low market forces tick up. 

We can even pull back and look at the big picture -- yes overall the market looks like it is turning where we would expect it and yes we are still in a bull market. Here is the Long Term Bull Bear graph. The light green line is the 4 day moving average and it is bouncing nicely along with the slope line at the bottom of the graph. 

A Cautionary Tail 
OK so all the indicators I use are looking positive, but the markets are never 100% certainty, there is always a contrary view and every so often they are right in spades. So here I will tell you what is my current nagging concern. This is a summer market, that means volumes are low and reverse swings are very possible. Also if Mr. Putin rolls tanks into the Ukraine well all bets are off. Fundamentals always trump technical. I learned Technical Analysis from reading the works of the master, John Murphy. Mr. Murphy says that there are some very dark signs on the horizon. 

First there is this graph. The red line goes up when bonds out perform stocks. The problem is that in history the bond guys are generally smarter than the stock guys and when money flows into bonds it is generally smart money. The green line is the U.S. consumer stocks and they are heart of the U.S, economy, again kinda not too strong. 

Mr. Murrphy's other concern is how badly the Germany market has performed this week.

OK well Mr Murphy is the worlds foremost technical analyst and me well I am a putz, still I am disagreeing, and dear reader, I am betting real money here so I have a good reason to be careful. I think Europe is far more worried about Putin than we in the west are, I also think that consumer stocks are over run and seldom do well in the summer, they generally run up in the fall in anticipation of the coming Christmas buying season. The consumer is on holidays, no big deal.  On the subject of the consumer I also feel some teeny oriented stocks are really in the stratosphere, like American Eagle, Gap, Aeropostal etc. 

What Works Now
Ok so we are probably on another bull run cycle, what is good to buy?

Well a good steady choice is Iron Mountain, it went on sale this year when the company accountants pulled a fast one on the IRS and got caught, but fundamentally this firm is in a great business. They shred and store paper for big bureaucracies like government and banks.  I advised readers to keep an eye on it as it recovered, and recovered it has. 

Another couple of great business are disruptive of how things are done in the travel business ... Expedia and Tripadvisor

I bought an opening position again in TripAdvisor this week. 

China's version of Google is called BIDU and it has been on a nice run .. recommended many times before here in this blog. 

Canadian medical company CRH Medical corp. focused on providing physicians with expensive and lucrative products for the treatment of gastrointestinal diseases. I have a great gut feel about this one!!! (ha ha)

Gilead is turning around with the rest of Biotech, I purchased this two weeks ago. This company pioneers new versions of drugs that were multiple tablet regimes and turns them into "once a day" . Simple science but big profits.

Also wana up your risk? Play a favorite of mine that has yet to turn around, down some 6% so far this year,  have a look at Kythera Biopharm. This company hopes to make our skin look better and make us thin even if we eat like sows at a trough. America loves to live better chemically. 

A Mile Stone
Thursday the markets ended the day just modestly higher but at their highs of the day, but it was a record-setting day of another kind because one stock has gone where no other stock has ever been before. It is a company you know run by an investor whose become a household name. It is Berkshire Hathaway (NYSE:BRK.A). And one share of Mr. Buffett`s class A stock became the first ever to cross the $200,000 barrier today and it closed at an eye- popping $202,850, up 3,241 today alone. Monster Beverages rose about 30 percent on Friday morning, boosted by Thursday's news of Coca-Cola taking a 16.7 percent stake in the firm.

Coming to You From Salt Spring Island
Today's post was written from the back deck of the Sailing yacht Valborg harbored today in beautiful Salt Spring Island and also from the Salt Spring Island hotel where we enjoyed brunch. 

Sunday, 10 August 2014

August 9, 2014 – Weekend Market Comment

August 9, 2014 – Stocks finish the Friday session and the week on a strong note, with the S&P 500 and Dow posting their biggest one-day point and percentage gains since March 4. The major indexes all see weekly gains as Ukraine fears moved to the back burner. Investors on Friday proved that they have been a lot more worried about Ukraine and the potential for a deeper conflict between the West and Russia than they are about fresh U.S. military action in Iraq.

We have been in a corrective mode over the last two weeks, but I don’t think the geopolitical risks have become noticeably worse, and the earnings season, which should matter the most, has turned out to be good,

S&P 500 — up 22.01 points, or 1.2%, at 1,931.59. For the week, the S&P rises 0.3%. DJIA — up 185.66, or 1.1%, at 16,553.93. That leaves the Dow up 0.4% for the week after two consecutive weekly losses. Nasdaq Composite — up 35.93, or 0.8%, to 4,370.90, booking a 0.4% gain for the week.

That was a nice day Friday, but one day does not change a pattern that otherwise has been like driving off a cliff. Many of the indicators I am going to show you have hit the limits we expected, and next week they will either turn around as expected or this is being caused by something much bigger. From what I can see there is little on the horizon to ruin the party, so I do expect this to be the bottom. That said we don't bet money on hunches, lets see what Mr. Market has for us, there is lots of time to get in when the up turn is confirmed. 

Lets begin with the Long Term Bull and Bear Lines. This pattern could well end up like February 7th and as you can see, the slope indicator in the bottom window is down about where it often turns up. 

Here we have the NYSE High Low chart, again it could easily repeat what happened February 7th. 

Again some promising looking bottoming activity in the Primary Sell Indicator

The VIX (the fear gauge) looks like it has also hit the top of panic with a nice solid green peak in rsi in the top window.

Also the stocks over their 50 day moving average graph is looking like it has reached the extreme end of oversold. This is the point where often it must turn around. As you can see less than 25% of the stocks that make up the S & P 500 are above their 50 day moving average. 

So lets see next week if this is the bottom.

Sunday, 3 August 2014

August 3, 2014 – Weekend Market Comment

August 3, 2014 – U.S. stocks declined on Friday, with the S&P 500 recording its worst weekly loss since June 2012, as momentum from the prior day's rout remained in play. On Thursday, the market was hit with multiple combination punches, a few may have even landed below the belt! Let's start with some weak earnings reports from YELP, MOH, GLUU, MTW and DDD.

Those were enough to get Nasdaq moving lower, but we were then hammered with the weakest Chicago Purchasing Managers Index (PMI) in the past 13 months! Then, just to really get markets roiled, they were hit with Argentina's default, and just for good measure Adidas said poor sales of golf equipment and sanctions against Russia caused their profits to fall by 16 percent. That turned a weak opening into a bloodletting as investors hit the exits.

Stocks, bonds, gold, oil and other commodities are falling together, something we have not seen in a few years. I am especially concerned that, unlike previous declines, bonds are not seeing a flight-to-quality rally, something that would hold down interest rates and cushion any decline in equities.

(as always click on any graphic to enlarge it)

Things did not look better in any G7 market, here we we see Germany saying Auf Wiedersehen, but the story was the same in all major European markets. 

Even booming Canada felt the pinch.

Still you were not surprised . . . because for three weeks now we have watched these storm clouds building and moving in here on the CME4PIF blog. We have watched the Primary Sell indicator move from record high bullishness into a slow three week-long march to the exits, and right on time the markets sold off.

We also got a strong heads up signal when small caps were performing way behind the large cap indexes. As I said last week that is always a concern. 

So is this the bottom? Is it time to scoop up bargains? Well no . . . not until the Green Arrow Graph says it is time and for now it most certainly does not. Who knows how long or how bad this sell off could be?
Nope no Green Arrow yet...

Spot VIX meanwhile is trading 16.38, which is 1.44 over the August futures. When spot trades above futures this is known as backwardation. Such situations are rare and show a sudden overwhelming fear has gripped investors. In times like this and under such duress investors create oversold situations in stocks and or indexes as too many people try to get out the exit all at once.

But if you know the markets, panic can be profitable! Did you hedge your portfolio by following me into VXX? If you did you are up over 10% in just a few short weeks.

Still there are signs that this could go a little lower and then turn around, certainly the NYSE 50day overbought graph seldom stay below 30% for long. 

Our favorite lagging economic indicators still are holding in, employment still is strong. 

So is industrial production

But of course these two indicators turn much later than the market. 

The plan is simple, keep you powder dry, sit hedged and in cash and wait for better days in the market, now get out there and enjoy the summer!