Saturday, 25 October 2014

October 25, 2014 – Weekend Market Comment



Yes I know this posting looks a bit odd but I am posting from my buddy Pepe`s mac notebook sitting in my friend Guy`s apartment in beautiful Bordeaux France and so you get what you get. Also this mac is set to Spanish so you are going to need to forgive me, my spell check is not functional and many buttons are a tad confusing.

Of course in the market we are having a nice bounce that you all  saw coming because I showed you that primary sell was bouncing off the bottom and VIX was way over sold. 







It all shows up in the charts


The VIX is returning to risk on mode with the insiders taking off insurance.


Many have asked if this is a real bounce or just a dead cat. To that I point out OBV that remains strong. The insiders are buying as long as this red line keeps up.

One thing that had me deeply worried was the the NYSE high low was so damaged, well this week back it jumped. We are well into all clear, risk on.


So are there any concerns? yes, it is true that small caps were lagging the market, this shows that the ´what the hell...take a flyer´ crowed is still afraid of the market, but even there we see signs of hope if the current bounce continues. Here is a graph comparing the 2000 smallest companies vs the dow 30 titans. Notice a bit of under performance in the last few days. 

To be fair there could be a small retrace here to base on the fact that we did have a pull-back Thursday and that the market has bounced up very hard off the bottom. 

Of course in my prior blog I mentioned some plays that are likely to do well this week including ULTA ALXN DPZ WFC ITC CP(Canadian) PGR IRM TRIP MFHI

Canadian retailer Dollerrama DOL.to is still a great firm with an expanding price point as it move in to $3 goods and nibbles at WallMarts market share.L.to

Of course I am still long Canadian Pipelines and Banks.

I did buy some Visa, a wonderful company that is like a sort of low risk world wide tax on all retail sales. Already up 5%!


Next week I am in Madrid and might consider playing an oversold bounce in Spanish super bank Santander. 

Spanish banks are in a sweet spot right now,funding costs are dropping and they are still managing to maintain asset yields. The recent Euro zone fear of more trouble in Greece and Spin has taken a big chunk out of value of what is in fact a well run bank. People do not understand there has been a steady improvement in the bad loan ratio since the financial crisis. Sure this is no class A bank like the Bank of Nova Scotia and Spain is not exactly thriving, but if you want to buy low, this bank is on sale. Lets say it looks like it suffered enough. 



I bought heavily but very defensively this week, selecting index funds like in Canada CDZ and in the USA SDY. The nice thing is these ETF funds are easy to buy and sell without moving the market and it does not take a lot of thinking, so I can get back to important things like enjoying France while meeting proprietors of Vineyards and sampling wine. 


Beautiful Chateau Pichon in longueville, a division of insurance juggernaut AXA.




You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it.






Saturday, 18 October 2014

October 18, 2014 – Weekend Market Comment



October 10, 2014 – OK folks I will appoligise from the start, I am in Europe and I left my laptop at home. The good news is I did not bust my back comuting on the London Underground but the bad news is the quality of what I can show you will  be impared for a month.

U.S. stocks rallied on Friday, softening a fourth week of losses, as investors bet on further stimulus from central banks and corporations including General Electric and Morgan Stanley reported profits that topped expectations. Scaling back after a 310-point jump, the Dow Jones Industrial Average rallied 263.17 points, or 1.6 percent, to 16,380.41, with UnitedHealth Group leading blue-chip gains that extended to all 30 components. Halting a six-session decline, the Dow lost 1 percent for the week. Posting its longest weekly loss streak since August 2011, the S&P 500 added 24 points, or 1.3 percent, to 1,886.76, with industrials the best performing of its 10 major sectors, all of which advanced. The Nasdaq climbed 41.05 points, or 1 percent, to 4,258.44, down 0.4 percent from last Friday's close. The Russell 2000 edged lower, but the small-cap index scored its first weekly gain in seven. For every share falling, nearly two gained on the New York Stock Exchange, where more than a billion shares traded. Composite volume approached 4.5 billion. Things looked better for Europe too with a 3% rise in Eurozone stocks Friday.
OK well there are a few things to keep in mind here. That bounce that began Thursday was impressive, both in size and in the participation of small caps, I will show that in a momnet. Also ta da we do have a Green Arrow on the Green Arrow Graph! But before I show that I warn you about a chart that has me concerend.
 
OK lets see that green Arrow (yeah you gota click this week to see pictures):
 
 
And all the usual indicators are starting to head upward.
 
But check out this puppy, the one that has me concerend. This shows a monthly view of midcap equities and because this is a monthly chart those are very big time frames you are looking at, Notice it can be a long time until you get a red bar and when you do . . . it is often trouble for a while.
 
 
To be fair this is only true on the midcaps and is not what the S&P500 version looks like, also this is a monthly graph and the month is not done. But things are changing, in short, volitility is back and we are prbably in for a bumpy ride up to the U.S. mid term elections. The markets understand that with global growth at a near stand still that really most of the optimsum has been from US equities.
 
I noticed a few things on Thursday that all happened at once. First off the US 10 year treasury note fell below 2%. The sell off in the S&P500 hit a 10% sell off almost exactly.  The Midcap 400 hit in the 1270 range same as the Febuary low.

So we followed with a two day bounce. An impressive bounce but we did only sell off about 10% and last week I showed how it could be close to 17% to be more in line with the end of the prior to QE sessions.
 
VIX
The CBOE Volatility Index, a measure of investor uncertainty, dropped almost 13 percent to 21.99, a level that has it up nearly 74 percent from a month ago. Clearly the pros are taking off the saftey net slowly.

Aggresive Defensive
http://scharts.co/1pn3Y0d
You will noice that what you see here is the tiny fimrs that make up the Midcap 400 are beeting the mosted stable dividend plays. This is very encouraging a few more days of this and we will be lcearly back in RISK ON mode!

 
If you want some hints where to look at what I am buying have a look at my prior blogs including:
Celgene
Dominos Pizza
Wells Fargo
CP Rail
 
I can tell you over here in London there is no shortage of young people who can afford 40 pounds sterling for a steak or a cab ride, 200 pounds for a sweater, and even 40 punds for a steak. I see little poverty and lots of help wanted ads, so things can't be too bad in Europe.
Well that's the news for this week... reporting from the Canary Wharf Hilton in the heart of finance for Europe, the London Finacial District. Next week is Bordeaux France, it might even be harder to write from there!
 




You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it.


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Saturday, 11 October 2014

October 10, 2014 – Weekend Market Comment

October 10, 2014 – U.S. stocks fell sharply on Friday, with benchmark indexes falling for a third week in a row. Down 3.1 percent on the week, and up 3.1 percent for the year, the S&P 500 dropped 22.08 points, or 1.2 percent, to 1,906.13, with technology hardest hit and utilities faring best among its 10 major sectors. The Nasdaq declined 102.10 points, or 2.3 percent, to 4,276.24, leaving it off 2.3 percent on the week and up 2.4 percent on the year. For every share rising, nearly four fell on the New York Stock Exchange, where nearly 949 million shares traded. Composite volume cleared 4.5 billion. On the New York Mercantile Exchange, crude futures for November delivery turned higher, up 23 cents, or 0.3 percent, at $86 a barrel and the December gold contract fell $3.60, or 0.3 percent, to $1,221.70 an ounce.

Adding insult to injury after the bell on Thursday was a revenue warning from the CEO at Microchip Technolog. With the Fed going away, and the slowdown in Europe, the market is trying to figure out are these valuations fair, that's what this whole week has been about.

Ah but nothing bad happened to you, because you listened to me for weeks now when I said to raise cash and stay away from high beta investments.

Well here it is all in the charts . . .

Primary Sell:

Pros have left the building folks.... abandon all hope.

Long Term Bull Bear Lines:
NASTY, NASTY NASTY. Move from low beta investments to cash.

NYSE High Low:

NASTY, NASTY NASTY. worst this graph has looked in 5 years. Move from low beta investments to cash.

On Balance Volume:

Not great but there is some institutional bargain shopping or this puppy (red OBV line) would be way below the price. First hint of an impending bounce could be found here.


S&P500 Percent Stocks Above 50 day MA:

NASTY, NASTY NASTY. Move from low beta investments to cash.

VIX:

The CBOE Volatility Index, a measure of investor uncertainty, rose above 20 for the first time since early February, and spiked 13 percent to 21.24. I will say that a VIX move of more than six points is often the limit, but really I see no hope so far. This is full scale panic as the pros rush for cover. they are running away like scared little girls.


Nasdaq Summation Index:

NASTY, NASTY NASTY. Move from low beta investments to cash.

Look a NASDAQ trader. . .



Aggressive Defensive:

NASTY, NASTY NASTY. worse graph of ths type in 5 years. Move from low beta investments to cash.


Green Arrow Graph:

Slope is falling. This is no time to invest NEW money.



USA Renko Chart:

Hmm that 4th black square was not suppose to happen,  . .  this could get ugly.

Bonds vs Stocks

NASTY, NASTY NASTY. when red climbs you should bail. Move from low beta investments to cash.

However there is a hidden ray of hope . . . notice the blue green line, consumer discretionary stocks are flat and not in the downdraft, that means that institutions are buying bargains in consumer stocks, as predicted last week.

What Works Now
Well their is a an ETF it goes short on the hot names like Netflix called HDGE. But caution that would be a counter trend move in a bull market. Not generally a good idea.


Summary
I said last week:
"it is too early to jump back in but this bounce looks real, ... but no betting the farm just yet,  be uber-safe, wait for a green arrow!"
Ah, now you know why I said that. I say never try and catch a falling knife and the buy the dip guys are bleeding this week. That said, the long term bull bear lines are still green over red and as disciplined traders that means we don't ever play the short side in a bull market. I showed you two signs of hope this week, there is some market support out there.  I am in cash and waiting for a bounce. My powder is dry ready to fire.

Make no mistake, this could get a lot worse before it gets better. The conclusion of QE1 and QE2 resulted in a correction for the S&P 500 Index of 17.1% and 21.6%, respectively:



From peak to trough over the period of three to five months; as of Thursday’s close, the large-cap benchmark was down 4.5% from the high over a period of just a few weeks.   If the two previous corrections following the conclusion of a quantitative easing program are a guide as to where the market is going, stocks could realize further significant losses over the months ahead, providing the long-awaited correction and refreshing equity market momentum by shaking loose weak hands.   Regardless of how far the market falls, equity buying opportunities for the period of seasonal strength continue to become increasingly appealing, allowing for greater upside potential from a depressed state.

I pin my hope for recovery on three factors, First, there's no recession in sight. Actually, economic growth is picking up from 2 percent to at least 2.5 percent. The positive Treasury yield curve — the difference between long- and short-term interest rates — is a key signal here. Second, in the TIPS (Treasury inflation-protected securities) market, the so called break-even rates are 2 percent or less. So there's no inflation. Therefore, we're looking at better growth, low inflation, and a Fed that's ending quantitative easing this month.
Finally you could say Europe is weak. But you could have said that at almost any time over the past several decades. And at only 13 percent of the U.S. export market, a soft Europe won't bring down the U.S. — or the world economy.

The bottom line is no one is too excited to be in this market with the fed ending stimulus. Industrial production is high and so is non-farm payroll, so this is probably not an apocalypse. In fact a nice firm bounce next week would be no huge surprise at all.   Until we get buying it is best to be on the side lines and see if the sun will come out.

Speaking of rain, I am off to London to visit my trader friends in the UK, yes Nigel even you. Then to Bordeaux to make sure the vintages this year are going well and down to visit more vineyards in Roja Span. Speaking of wine: click this link to see a cute article on why wine is like trading. By all means drop me a line if you are in the area and want to to talk trading.





You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it. 


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Sunday, 5 October 2014

October 4, 2014 – Weekend Market Comment

October 4, 2014 – U.S. stocks surged on Friday, with the Dow industrials jumping 200-plus points, after a better-than-projected payrolls report bolstered a positive view of the U.S. economy.

Folks we couldn't ask for a better-looking U.S. jobs report. The market had been getting a bit frazzled; this is the kind of report that eases those concerns. As I have been showing you recently we are seeing an acceleration in jobs growth makes the  Federal Reserve officials very comfortable ending quantitative easing later this month, The government reported the U.S. jobless rate fell to 5.9 percent in September and companies added 248,000 in payrolls after a 180,000 hike the prior month, more than previously estimated. Here is Non-Farm payroll now well past the 2007 peak:



Halting a four-session streak of losses, the Dow Jones Industrial Average jumped as much as 226 points, and finished up 208.64 points, or 1.2 percent, to 17,009.69, with Goldman Sachs Group leading blue-chip gains that extended to 29 of 30 components. The Dow closed 0.6 percent down from the week-ago close. The S&P 500 advanced 21.73 points, or 1.2 percent, to 1,967.90, with health care financials the best performing and all 10 major sectors in positive terrain. The Nasdaq climbed 45.43 points, or 1 percent, to 4,475.62, leaving it with a weekly loss of 0.8 percent. For every share falling, just over two gained on the New York Stock Exchange. Composite volume neared 3.6 billion. On the New York Mercantile Exchange, oil futures for November fell $1.27, or 1.4 percent, to $89.74 a barrel.

Warning, I am blowing my own horn here: You might recall last week I said..."we probably have not competed the retracement, but we may be close. The last three pull backs were all about 4.5% but so far we are only down 3%." and no surprise the S & P 500 sold off to about 4.5% by Wednesday and began to turn up on Thursday.


As always, this all shows up in the charts . . .

Primary Sell:

Pros still not back in the game, but their attention is on the rise!

Long Term Bull Bear Lines:

Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Nibble here trade some cash for some solid investments that you love.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


NYSE High Low:


Some tiny signs of hope but still ugly.
Conservative investors: Wait for a cross over
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


On Balance Volume:

Solid bounce with good OBV follow thorough. Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Nibble here trade some cash for some solid investments that you love.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


S&P500 Percent Stocks Above 50 day MA:

Some tiny signs of hope but still ugly.
Conservative investors: Wait for a stronger signal
Aggressive Buy the Dippers:  Well this could bite you . . . but better now than last week.



VIX:

On Wednesday and Thursday, some of the day's biggest trades have been sales of put options on the S&P 500 and the Nasdaq 100, as well as sales of call options on the VIX. Since the VIX tends to rise as stocks fall and traders become fearful, these institutional-sized trades on the CBOE Volatility Index indicate that major options players think the worst may be over. What we've seen at the end of last week is people starting to unload their insurance, take that protection off, To me, when we get the market down and yet people are taking insurance off, it tells me that the smart players out there are trying to buy into this market—remove the insurance, and play to the upside in stocks.

Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Wait for the 5 day EMA trend line to break below 13 before you trust this
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


Nasdaq Summation Index:

WOW! major ugly!
Conservative investors: Stay well away, this could get worse.
Aggressive Buy the Dippers:  Clearly the NASDAQ is not so far participating in this bounce. An optimist (fool?) would see an oversold market begging for reentry point.


Aggressive Defensive:

Some tiny signs of hope but still ugly.
Conservative investors: Wait for a better signal.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.
 


Green Arrow Graph:

No green arrow for you! I would wait on the sidelines just a tad longer. Could be OK to buy really solid equities.

USA Renko Chart:

Classic, looks like the correct point for a bounce in a market that is still in a long term uptrend.

This graph above is based on an ETF called IWM  These are much smaller company stocks than found in the S&P 500 index and notice how much more the range is stuck, No aggressive buying of small caps is either an opportunity or a sign things are not as good as we thought. Keep this in mind the S&P500 is up nicely this year but small caps, the Russell 2000, that's down over 4½ percent, was down 6 percent last month, second month out of three we saw that. Emerging markets are down on the year. Europe's down on the year. So its not all roses out there. . .. I sure hope this breaks out to the top, or this could be the end of the long running bull.


A Special Report -- Fall 2014 and the American Consumer
Investors who want to make tactical shifts in their portfolio can use certain predictable cycles to invest in certain sectors at certain times of the year. In the fall attention turns to the U.S. consumer, as retailers stuff their shelves with clothing, food and toys. Household spending generates more than two-thirds of total economic output, so sturdy spending gains should translate into economic growth. Also if energy prices stay low that bods well for low inflation and more consumer spending, since what we don't spend at the pump tens to go to Wall Mart. Christmas should be especially merry in 2014 as we are getting almost daily good news in the strength of employment and consumer spending. Or to quote the great economics professor Dr Seuss:



They'll blow their flu-flubers, they'll bang their tar-tinkers,
They'll blow their hoo-hoovers, they'll bang their gar-dinkers!
They'll beat their trum-tookers, they'll slam their sloo-slunkers!
They'll beat their blum-blookers, they'll wham their hoo-whunkers!


Consumer spending rose a seasonally adjusted 0.5% in August from a month earlier and personal income rose 0.3%, putting the U.S. economy on track for solid growth in the third quarter, Commerce Department figures showed.Consumer spending rose a seasonally adjusted 0.5% in August from a month earlier and personal income rose 0.3%, putting the U.S. economy on track for solid growth in the third quarter.

Americans' estimated spending on services rose 0.5% in August. Spending on goods rose 0.4%, including a 1.8% jump in purchases of durable goods like automobiles.

A good sign of confidence is Americans have stepped up borrowing in recent months. Outstanding consumer credit, excluding mortgages, rose at a seasonally adjusted annual rate of 9.7% in July, according to Federal Reserve data. Growth accelerated both for revolving credit, such as credit-card debt, and non-revolving credit, including auto and student loans.

So this should show up in the charts. As it is clear that the US economic stimulus is going to be withdrawn you would expect a flight from US bonds.  The red line is a ratio showing if you would make more money in stocks or bonds, Ah too bad for Mr Bond, now on a down turn. 



The funny blue green line is the US consumer discretionary spending line. This generally does very well in the fall. So expect bonds to drop, consumer retailers and consumer goods manufacturing to excel.


What Works Now
Well, short bonds. Of course long consumer stocks and a few solid firms beat down in the sell off. Look at any of these right now if your aggressive or in a bit if you are conservative.

OK so short US treasury bonds with the TBT ETF

Long consumer retailers and manufacturing:
















Summary
It is too early to jump back in but this bounce looks real, expect a strong fourth quarter with very strong consumer demand, but that does not mean this pull back is over. By all means nibble on some solid firms here, but no betting the farm just yet, to be uber-safe, wait for a green arrow!

Happy 100 CME4PIF



This is my 100th Market Comment, oh joy!














You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it.