Friday, 26 December 2014

December 26, 2014 – Weekend Market Comment

December 26, 2014 – U.S. stocks opened slightly higher on Friday, with major indexes on track for a second straight weekly advance, though moves were likely to be slight with few market catalysts and many traders still out for the Christmas holiday.

U.S. stocks rose on Tuesday, with the Dow closing above 18,000 for the first time ever and the S&P 500 ending at a record after an unexpectedly strong report on economic growth.

The Nasdaq ended modestly lower, pressured by the biggest selloff in biotech names in many months, while trading was light ahead of the Christmas holiday. Markets were closed early on Wednesday and Thursday.

Both the Dow and S&P 500 hit intraday records in their fifth-straight day of gains. The Dow rose as high as 18,069.22 and is up about 175 percent from a 12-year closing low hit on March 9, 2009. The S&P's record close was its 51st such record this year. 

The final estimate for third-quarter U.S. economic growth was revised up to a 5 percent annual pace, its quickest in 11 years and easily topping expectations for growth of 4.3 percent. This is the strongest sign yet that growth has decisively shifted into higher gear. Some of the strength appears to have been sustained, with other data on Tuesday showing consumer spending rising solidly in November, offsetting surprisingly weak durable goods orders. The reports further set the U.S. economy apart from the rest of the world, where growth is sputtering or activity shrinking.

It All Shows Up In The Charts . . . 

Bull Bear Lines
We are clearly in a Bull Market even pull backs are short and the snap back is hard.

Russel 2000 Renko
Here is a Russel 2000, drawn in a Renko Chart, this graph ignores time and draws a new square when it breaks into new territory.  As you can see we are in record territory. 

Industrial Production
As I mentioned the recent rally is due to an unexpectedly strong report on economic growth. Here we see US Industrial production spiking upward. 

Non-Farm Payroll
The strong economy also shows up in record employment numbers in the US.

Green Arrow Graph
We have a Green Arrow! This graph tells us this is a good time to put new money to work. 

Aggressive Defensive Graph
The Slow Stochastics on the top of the graph are black over red, Clearly Aggressive small caps are leading the rally

Nasdaq Summation
The Nasdaq Summation index shows that is is good time to be in high tech Nasdaq stocks.

NYSE New High Low
Things are also showing strength on the big board.

Primary Sell 
The primary Sell is reflecting the nice bounce in the market.

On Balance Volume is keeping pace with the current market showing that institutional large volume buying is still active. 

S&P500 over 50 Day
The percentage of stocks over the 50 day moving average is on the rise consistent with a a short term bounce. 

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14 generally on a downward slope. Notice the drop in the CCI graph at the top, often a predictor of dropping volatility. You can learn more about the VIX index here.

Bond vs Equities
Equities continue to outperform bonds this week. Investor remain concerned that the Fed may be forced to raise rates in 2015. 

Clearly its is a week of risk on, and if you were looking for an entry point last week would have been a good one. We have a Green Arrow so this is a time to put new money to work.  The snap back has been very strong which a a trend following optimist would say . . . this shows expected momentum and a revision to the mean pessimist would say . . . too far to fast, regardless the risk on environment is here and the economy is strong, As long as the Bull Bear lines are dark green over red, it is time to be long. 

Last week there was no posting and this week it is a day early, but I am in the jungles of Belize right now and there is limited opportunity to keep on top of the markets. Here are the ATM caves in Belize

Happy New Year to everyone and lets see if we can continue this bull in to 2015. 

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

Sunday, 14 December 2014

December 13, 2014 – Weekend Market Comment

December 13, 2014 – Well yes the drop in oil is the big story but a new twist, this week, the International Energy Agency (IEA) cut its forecast for global oil demand for the fifth time in six months. It attributed that lack of demand to weakening global economic conditions. As predicted that caused the price of crude and brent oil to plunge to five year lows on Friday, hurting anything tied to oil production. That includes energy shares and stocks of countries that export energy. Big national losers continue to be Canada, Latin America, and Russia. Added to this week's list of big losers were Britain and Norway, and any number of oil-producing nations in the Mideast and Africa.

The Dow Jones Industrial Average declined 315.51 points, or 1.8 percent, to 17,280.83, down 3.8 percent from the week-ago close, its worst weekly loss since November 2011. International Business Machines led blue-chip losses that extended to all 30 components. Recording its worst weekly hit since May 2012, the S&P 500 shed 32.99 points, or 1.6 percent, to 2,002.34, down 3.5 percent for the week, with materials falling the most among its 10 major industry groups, with all in negative terrain. The Nasdaq declined 54.57 points, or 1.1 percent, to 4,653.60, off 2.7 percent from last Friday's close. For every share rising, nearly four fell on the New York Stock Exchange, where 964 million shares traded. Composite volume neared 4.2 billion.

What I Think
Well it is simple enough, some 20% of the DOW is energy related and since the trading computers keep the indexes synchronized a sell off in the broad market was inevitable. Besides that since you are wisely following my blog you have seen the S&P500 percentage of stocks over the 50-day MA has been decaying for weeks. Last week I highlighted it in red letters, as it said last week . . .don't ignore this weakness.

There has been some interesting chatter about the U.S. being over exposed to  fracking and shale oil drilling loans. It's the outcome of a zero interest rate policy from the Federal Reserve. What's happened from 2009 to 2014 is, the energy industry has outspent its cash flow by $350 billion to go drill all these wells, and create this supply 'miracle,' if you will, in the United States. The fear is that the issue with this has become, what were houses in Florida and Arizona in 2000 to 2006 became oil wells in North Dakota and Texas in 2009 to 2014, and most of that was funded in the high-yield market and by private equity. With the massive price drop in oil both the drillers and the lenders may find there is no way to produce at $60 a barrel resulting in loan defaults and the end of exploration for a few years. 

Oil’s collapse is predicated by one major event: the explosion of the US Dollar carry trade. Worldwide, there is over $9 TRILLION in borrowed US Dollars that has been ploughed into risk assets. Energy projects, particularly Oil Shale in the US, are one of the prime spots for this. Some 15 to 20 percent of the high-yield debt market is exposed to the energy sector, and many of the bonds Wall Street sold the last two years are now under water. Another hot spot is emerging markets. If these risky bets become worthless the results could negate some of the gains of the 2009-2014 rebound.

The implications, if true, are obvious... again we are using low interest, low risk capital for high risk projects, before it was housing, now it is oil drilling, but in any case the dangers are as big.

With growing panic in the oil markets you might be interested in this:

It All Shows Up In The Charts

Primary Sell:

Pros are Getting Nervous! Since you rotated over the last three weeks into large cap defensive stocks and cash you can stroll to the exit now. This movie is over... don't wait for the credits to roll. Ring the cash register!

Long Term Bull Bear Lines:

Still in a long term Bull Market (dark green over red) ... short term sell off due to global weakness. Raise cash be ready to return to the market. .

NYSE New High New Low:

Looks not so good, this was our last positive hold out, now clearly spooked.

On Balance Volume

An Oddity!   Clearly the big market movers were caught off guard as funds continue to buy well in to the sell off as hope is a strategy. I think this is a case of "Too Smart by Half" as fund managers cling to the idea that markets do well in the last quarter and that fundamentally the economy is strong.  The take away here is there are going to be bargains after the sell off.

S&P500 Percent Stocks Above 50 day MA:

This baby saved our bacon! while many other charts last week showed a bounce in buying this graph kept warning us that there was a "disturbance in the force". Well our light-sabers were firmly poised over the sell button last week.

Padwans . . Listen to the S&P over 50 graph, reduce your risk/beta and sell at market, say I


Well insurance for a sell off is selling really well. Those little Pentium chips at the automated hedge funds are running like scared little girls.

VIX Evaluator:

No question now . . .raise cash prepare for bump!

Nasdaq Summation Index:

Looks really good, clearly the bounce has been all about high beta Nasdaq tech stocks.

Aggressive Defensive:

Slow Stochastic is falling. Move from aggressive high beta to more conservative low beta investments.

Green Arrow Graph:

Slope is falling. Move from aggressive high beta to more conservative low beta investments. This is no time to invest NEW money.

Bonds vs Equities:

Clearly a flight to quality as bonds way out perform the US markets.

Hindenburg Omen:
OK this is one of the dumbest indicators out there . . . but because I like to show you how I try to look at a lot of stuff . . .yes this week we triggered the famous Hindenburg Omen. This goes off when the market makes new highs but a large percentage of stocks don't. Considering what is happening in oil, this is really is no surprise. This thing gives many false signals (especially in strong bull markets) but it has also gone off before every major crash so . . .

What Works Now
Cash and for you buy and hold crowd, consider bonds or very stable big companies.

Short Canada
For the last two weeks I have had a short position in Canadian Equities.... it is paying for my vacation. Caution: Counter trend move not for the conservative investor.

I am buying more US Bonds

Short Emerging Market
Caution: Counter trend move not for the conservative investor.

Long Volatility
Caution: Counter trend move not for the conservative investor.

Raise cash, buy bonds, lower beta get ready to buy up the bargains.

This week I am writing to you from Mexico, as I work my way to my down to my winter home in Belize. since you all followed my advice and missed last weeks sell off, I am sure you will agree I have earned today's trip to the beach for a well earned Cerveza . . .

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

Sunday, 7 December 2014

December 6, 2014 – Weekend Market Comment

December 6, 2014 – U.S. stocks rose on Friday, lifting the Dow and S&P 500 into uncharted terrain and posting a seventh week of gains, as investors embraced a stronger-than-forecast November payrolls report as backing the view the economy can handle rate hikes by the Federal Reserve in 2015.

We have the pieces of the U.S. economy coming together, with robust jobs growth, falling gas prices giving consumers lots of confidence to spend money, and low interest rates. It's a great holiday gift going into the end of the year. U.S. employers created 321,000 jobs last month, the largest gain since January 2012, and topped the most cheery estimates. The unemployment rate remained unchanged at a six-year low of 5.8 percent, and hourly earnings increased 0.4 percent.

Just look at Non-Farm Payroll it will not be long before the US runs out of cheep labor again.

After a 91-point advance lifted it to a intraday record and within 9 points of the psychological milestone of 18,000, the Dow Jones Industrial Average gained 58.69 points, or 0.3 percent, to 17,958.79, with JPMorgan Chase and Goldman Sachs Group leading blue-chip gains that included 20 of 30 components. Also climbing to a record, the S&P 500 advanced 3.45 points, or 0.2 percent, to 2,075.37, with financials pacing sector gains, as higher interest rates would boost bank earnings, and energy performed most poorly among its 10 major industry groups. The Nasdaq added 11.32 points, or 0.2 percent, to 4,780.56, leaving it down 0.2 percent on the week, it first weekly drop in seven. For every seven shares that fell, eight rose on on the New York Stock Exchange, where nearly 755 million shares traded. Composite volume approached 3.4 billion.

Oil and Commodities 
Dollar-denominated commodities including oil and gold fell, with crude futures for January delivery falling 97 cents, or 1.5 percent, to a five-year low of $65.84 a barrel and gold futures for February dropping $17.30, or 1.4 percent, to $1,190.40 an ounce. 

Say Hasta-la-vista Argentina, Adeus Brazil, Do-Svidaniya Russia, G'day Australia and Take-off-ya-hosers to Canada. The era of living off taking rocks out of the ground is over!

Folks this is no time to play long commodities, oil stocks or anything to do with national economies that rely on commodities as a major export. 

Here is the CRB commodity index . . . ewww!

It’s looking like Monday’s spike in oil prices was little more than a blip. The price of oil fell again on Tuesday after experiencing a brief rebound to start the post-holiday week. Crude oil prices gained as much as roughly 4% yesterday, rebounding from five-year lows, before falling again today. Prices for Brent crude oil are recently down about 2.3%, to $70.83, while West Texas Intermediate (WTI) is down 1.8%, to $67.26. Oil prices are down sharply this year, losing over 30% of their value since hitting a summer peak.

Look at the price of oil folks . . . this is no time to be long oil. 

One person I know was asking about buying up a Canadian Oil company stock after a recent pull back . . . Look at this chart. Even if you did not know the world was swimming in oil . . . does this graph look like a buying opportunity? 

We don't catch falling knives. . .

I have always said the most influential magazine in the world is the Economist and this week's cover story is an important read on why we are going to be swimming in oil for a long time. 

Put simply, global oil supplies are exceeding demand and driving down prices in the process. A major factor has been the explosion in U.S. oil production, which is up to almost 9 million barrels per day and expected to hit the highest levels in four decades next year. Another factor is the struggling economies in Asia and Europe leading to a decrease in oil consumption. China, one of the world’s largest oil consumers, has seen its economic struggles result in its demand for oil being outpaced in Asia by India, a country that has also struggled financially of late. Saudi Arabia also cut the price of its own crude to the U.S. earlier this month, which has further propelled the sell-off. 

Look at the areas in the USA that are fracking right now.

Meanwhile, oil futures were hit especially hard late last week by a decision by the Organization of Petroleum Exporting Countries (OPEC) not to adopt additional measures to tackle oversupply issues. OPEC, the cartel responsible for one-third of global oil production, said it would keep its self-imposed output ceiling at 30 million barrels per day. The announcement subsequently sent already-low oil prices down even further as OPEC’s maintained quotas will do nothing to lower overall oil output to a point that is consistent with global demand for the cartel members’ oil, which the International Energy Agency estimates at just above 29 million barrels per day for next year.

It All Shows Up in the Charts . . .

Bull Bear Lines
We are in a Bull Market as we have been for the last 5 plus years . . .  The worst you could says is we are overbought . . . but that can go on a long time. 

Primary Sell

Well the jobs report bounce caused an up-swing in the primary sell. 

Aggressive Defensive 
It looks like smaller more risky stocks are back in play.

Green Arrow Graph
The Green Arrow Graph looks more positive over just one week ago's graph. Although all you can really say is . . for now it is heading sideways. 

Nasdaq Summation Index
meach not sure yet . . .

Bonds vs Equities
As you can see the jobs report kicked the stuffing out of the rising returns in Bonds and put us squarely in the equities leading camp . . .

That said, you still must read these charts with a dose of common sense. Here is the graph for TLT even though many expect rising interest rates, it has not really been a stampede for the door . . . at least not yet.

NYSE High Low
Well the majority of action on the big board continues to be new highs and so all looks health on the NYSE.

OBV continues to shows that institutional buyers are investing.

S&P500 Over 50 Day
The trend continues as more and more weeks stocks loose appeal. Don't ignore this graph, there is developing weakness in the underlying market. 

The CBOE Volatility Index, a measure of investor uncertainty, fell 4.4 percent to 11.84. Confidence remains high and market crash insurance is is not selling well. Notice CCI is in the brown oversold area.

VIX Evaluator
Well our experimental graph is not falling off with the VIX this tells you the smartest money is not thrilled with this market . . .

What Works Now
Well I told you to be long Germany, and if you followed me in you are very happy this week

Some of our old favorite conservative buys are up nicely like the Bank of New York. For a conservative bank this is amazing. Up over 30% in 2014 when the S&P was only up less than half that.

The consumer is the story this winter. Young girls are still buying $200 a pair UGG boots

Probably end of the Christmas Rush but I hope you enjoyed the ride on Macy's recommended here in early  November.

Don't run out and buy this . . But keep an eye on Cognizant Technologies this firm exports US jobs to India and it with a jobs report this strong they are this might be a great long term play.  Symbol CTSH

Well the market really loved that jobs report, what was falling off last week has mostly recovered. Financials did astonishingly well this week. I would remain long the market, but still conservative because we are overbought. You can reduce your cash positions a little but don't go crazy this is an over bought market. Avoid anything to do with commodities and commodity based economies. I am taking profits in my Canadian holdings. 

You can learn more about my indicators by visiting the 

You always can make any graphic larger, for a better look, by clicking on it. 

Read My Disclaimer Here