Saturday, 26 December 2015

December 26, 2015 Weekend Market Comment


December 26, 2015 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. You can read the latest version each week by bookmarking http://cme4pif.blogspot.ca/.  For full details read my disclaimer (link at the bottom of this page).

First off I hope you your family had a wonderful Christmas, I certainly did. In keeping with the spirit of  the holidays, lets be brief. It really was not much of week for the markets, they were up, but on very little volume. That means the data in our charts is not fully reliable, and could change abruptly.  Lets see what is in the charts.






101 Bull Bear
Bear market (red over dark green) and now the short term (light green) is in a nice bounce up.

103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I am pulling in my horns. There is recovery on the way but it could disappear in a hurry. 

105 Non Farm Payroll
Lots of jobs!

107 Industrial Production
Not good. Watch this carefully, all recessions have falling industrial production, but data is from the end of Nov.

115 Renko
Three black down bricks the trend is broken and heading down.
 !
203 OBV
Notice the pros were not playing this week. Red line fails to keep up - watch out.
 !
207 VIX
VIX shows a little egg nog and rum will make you bold. The fear gage retreated to under 16.

209 VIX Evaluator
Mehh, sideways.

211 S&P500 over 50 day
Now over 50% stocks are above their 50day MA. Encouraging, the rally might be more than just 8 stocks this time. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
A turn up but not a green arrow.


301 NASDAQ Summation
Nasdaq showing recovery.
 !
303 Aggressive Defensive
Heading firmly into aggressive mode.

305 Consumer Bonds vs Equities
Disturbing, the consumer is lagging. Bonds are in an uptick.

307 Bond Direction
Short term buying.

309 Sectors
All sectors mildly up, except the consumer is being taken out to the woodshed. I think some naught MBA boys missed their Christmas sales projections.

311 Nations
Looks like international stronger, but really is just the last hold out USA, now heading south. Abandon all hope global sell off

313 Major sectors
I got nothing here!


 ! = Pay attention this chart is important this week.




What I Find Interesting

The price of oil continues to drop and most hydrocarbons like Natural Gas are falling too. Here is a graphic showing you what liquids cost.



Crime and Punishment
For Christmas how about a distraction from the markets. One of my favorite little known movies was a film called Falcon and the Snowman. It was about two young American middle class boys selling secrets to the USSR. The interesting feeling is one of wanting to yell at the characters to stop -- you knew all along they were bound to be caught.  For a similar feeling, read this new story in Wired magazine (in two parts) about the busting of the founder of Silk Road the online drug marketplace. Fascinating reading.



What I Think
I think you must be careful with a week like we just had with volume that low all most anything can happen. Technical analysis is like a windsock, and with no breeze it does not tell you much. It is still a bear market, as I went over in last week's comment. In a bear market you should expect bearish outcomes. Sell the peeks, avoid the high flyers.


All the best for 2016.







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


Don't squint, All graphics can be enlarged by click on them.





Saturday, 19 December 2015

December 19, 2015 Weekend Market Comment

December 19, 2015 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. You can read the latest version each week by bookmarking http://cme4pif.blogspot.ca/. For full details read my disclaimer (link at the bottom of this page).

Well I told you last week I took off most of my short positions and that most people should raise some cash. I said  this was going to big a very volatile week and we had a huge run up and down in just a few days. All these massive swings, only to arrive about where we left off last week.




Well lets look at our core charts:





 !
101 Bull Bear
Bear market (red over dark green) and now the short term (light green) is in a deep dive. Don’t be long, raise cash or look at shorts.
 !
103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I am pulling in my horns. Notice the deep drop in to the red zone in the lower panel. This is a sell off and could be a crash.

105 Non Farm Payroll
This is the “good news” the market is clinging too.
 !
107 Industrial Production
Watch this carefully, all recessions have falling industrial production, but data is NEW from the end of Nov. Looks even worse. (see monthly PMI data below)

115 Renko
Three black down bricks the trend is broken and heading down.

203 OBV
The Market has finally fallen to where the pros are playing.  A little more neutral now. Another buy the dip is possible.

207 VIX
Yowsers, VIX turned around to go higher. Reduce risk when the VIX is over 20.

209 VIX Evaluator
Shows trouble.

211 S&P500 over 50 day
Only 26% stocks are above their 50day MA. I expect this to get worse next week. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Ugly Ugly Ugly stay out of this sinking ship market.


301 NASDAQ Summation
Nasdaq last to crumble, now on express to hell.

303 Aggressive Defensive
Wow should bounce here, instead has gone back for a second helping of trouble ahead.

305 Consumer Bonds vs Equities
Tepid consumer bounce @ Christmas, this is only ok should be stonger. Bonds are in full gonzo panic, fear in market.

307 Bond Direction
Short term buying bonds even with a negative return.

309 Sectors
Nasdaq selling, Consumer, staples and utilities are on. Says: fear but still Christmas.

311 Nations
Looks like international stronger, but really is just USA, now heading south. Abandon all hope: global sell off

313 Major sectors
Glimmer of a bounce in gold that has set new low recently. Rest of world doing better than USA, but only a bit. Signs of fear!

! = Pay attention this chart is important this week.


What I Find Interesting
So lately a few experts on TV point out that the S&P 500 is holding above 2,000 and that historically Dec - April is a great time for stocks and also jobs market is a near perfect 5% unemployed... ergo -- things must be good? Jacob Lew points out in the USA things bought with easy to borrow money, like trucks and houses are still selling -- ergo  -- things must be good? Well the home builder stocks missed the memo, because here is what 8 months of investing in Lennar Homes looks like:

Even Bill Gross thinks it might be a good time to get some bargains in Junk Bonds

To all that I say:




I think this is HORRIBLE time to be in the market,  I am just not sure where to start in my rant of all the warning signs.

The Dow theory says that Transports drop before a big market sell off. 


Interest rates curb growth -- Libor is going ballistic:

Bond Credit spreads widen before a sell off

Market Breadth tanks before a sell off. Here is a chart from my weekly set, be concerned when you see red in the lower part of the chart or when green is below yellow in a dive.


Manufacturing Slows in a recession, in November 2015 PMI ISM manufacturing index broke below 50 -- signaling negative manufacturing growth (shading is prior recessions)





Global Markets Sell-off
Everyone knows the world’s economies are becoming ever more intertwined, but we’re only just starting to understand the ripple effects. Welcome to the new global economy: One guy sneezes, and someone else gets a cold. That’s what we’re seeing in the slowdown now happening in the U.S., in Europe and in emerging market countries all around the world. Barring some kind of radical decoupling, the tight correlation in fates between these economic titans is a phenomenon we had better get used to, and understand, because it’s not going away.

The economy that should scare us the most right now is the Chinese one. The country is slowing down, and that’s precisely because of the halting recovery and weakness in the U.S. and European systems, and the fact that the sputtering has been going on for some time. The U.S. and Europe can wait out our own recoveries. Our advanced economies are resilient. Even in the depths of our crises, the economic suffering, though real, has been muted. But China, despite its rapid modernization, is still, structurally, an emerging market. It’s far more vulnerable to economic shocks. And its political system, already facing turmoil in advance of that country’s leadership changeover later this year, is far more unstable than those in the West. If the developed world stops buying the stuff that China makes, it will force China to turn inward and double-down on state capitalism.

You can measure global trade by the rates charged for space on container ships. The rate is called the Baltic Dry Index. When raw commodities and manufactured goods are no longer shipping, the global economy is dying.



I made up these charts below of weekly results for the worlds stock markets. Green is the shortest term (9week EMA).  If green is on top the market is getting better. Orange is about 1/2 a year 25 weeks EMA. Red is the slowest (52 week EMA), so red on top is trouble. Oddly only Canada has a recent bounce. 

Japan


Asia x-Japan


China

Brazil


Europe

Germany

United Kingdom

Canada - a safe haven bounce or does everyone think the new Prime Minister  Justin Trudeau rides on unicorns and rainbows come out of his butt?


The Loonie

Equities might have bounced up in Canada, but the currency has not. The loonie is now down nearly 17 per cent against the greenback for 2015, the biggest drop since 2008, when it lost 18.6 per cent against the U.S. dollar due to a collapse in commodity prices. You might recall the summer of 2012 where I said to sell all things Canadian including the dollar. Lets see how that worked out.

A reader asked 7 months ago if the Canadian dollar could go lower, at the time I said -- yes, if oil goes lower, so will the Canadian dollar.  Look at the really big picture showing how strong the US dollar can be (scale inverted to the graph above):

U.S. Mid-Cap Small-Cap
At the end of a market cycle mom and pop jump in the market as the rest are leaving. They tend to buy big technology stocks like Apple or also institutions that are hoping things will hold together but are nervous turn to the stable core stocks like P&G or Hormel foods. That means the first stocks to sell off as the market falls apart are smaller firms. In these charts the colored zones show market pull backs. You can see it in a chart that shows two views of the S&P500 -- the S&P500 cap weight vs the equal weight. It tells you to be light on your risky holdings when the ticker RSP under-performs the ticker SPY

Again lighten up when the Mid-Caps 400 under-perform. The pull back has already begun in the Mid-cap stocks:

Value Line is an old school institutional research firm. Since 1961 one of their most prized tools is the Geometric index which has correctly predicted every recession. Looks like trouble:





Consider this . . .

If you think what I do is complex, try a simple experiment.  Click to enlarge this chart below, it is 20 years of the the whole 5000 stocks that trade in the U.S. public markets. Nothing fancy, it is just the big picture, lets use it to zoom out and see the whole market from a long-term perspective. Drink it all in, just stare at it for 10 min. (It is all very Zen -- be one with your chart).  Contemplate how all the little parts interact in the past and what it looks like now. Now tell me what you think happens next.

To me this looks due for a sell off. It could be brief like summer 2011, or nasty like 2008.  Begin with the basics -- in the main window, it just looks like the top is rounding. We also see more red bars, these are signs of negative momentum. The top panel 14 period RSI is below 70 all this year and now looks very flimsy. The ATR panel (2nd from bottom) (bright green line) shows, how big the price swings are. As you can see in the zoom window on the right -- it is really high now. This kind of volatility is what scares investors. ATR goes up  -- investors exit. Last week the volatility was insane, who needs those headaches?
 
What Works Now
People are always asking me how I make money in down markets, well it is called shorting the market. I do it by selling S&P futures short, but you can get similar results by simply buying an ETF to short the U.S. market. These tickers: SH, MYY, DOG all go up, when the market goes down.  Click here for a more complete list.


I also have a very profitable short against Junk Bonds, that I have been talking about here for many weeks now.


Perhaps it is too late -- but short natural gas was the trade of the year Ticker:DGAZ. The trend is your friend and the world is awash in natural gas.

 
What I Think
It is a bear market, so I sell on the bounces. 
 
I am Short S&P500 emini futures, lots of cash and short the mid cap 400. Remember going short is dangerous and if this is a sell off you will also have time to go short later. But no matter who you are this is no time to play the "high flyers" stay away from the recent big winners like Apple, no matter how much you love your iPhone. Take some profits from the seven year bull run. If you are using investment money consider going to cash. If you are young and aggressive consider ticker:MYY the Mid-Cap 400 short and ticker:SBJ the High Yield Short fund.






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




Don't squint, All graphics can be enlarged by click on them.







Saturday, 12 December 2015

December 12, 2015 Weekend Market Comment

December 12, 2015 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. For full details read my disclaimer (link at the bottom of this page).

Last week I said we we at a tipping point, we were, we tipped, the crowd goes wild. I am a hero and you dear reader stepped out of the way so you account did not go to zero. Cheers.

Learn how I spotted trouble so you can too. The big clue that the August sell off was not the end of the story was in our charts. The biggest sign we are in more trouble was continued problems in the NYSE High Low chart. Red splotches in the lower window and green stuck below yellow in the top panel is always trouble. Add to that the OBV -- predicting doom as the  smart money was not buying the dips. When the red OBV line fails to keep pace with the market -- be very careful. You can go back the last few weeks and display all the charts that I marked with a red exclamation point. It is not hard to see what had my attention.  





 !
101 Bull Bear
Is about to call this a bear market (red over dark green) and now the short term (light green) is in a deep dive. Don’t be long.
 !
103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I am pulling in my horns. Notice the deep drop in to the red zone in the lower panel. This is a sell off and could be a crash.

105 Non-Farm Payroll
November data looks positive.

107 Industrial Production
Watch this carefully, all recessions have falling industrial production, but data is old from Oct.

115 Renko
Two black down bricks the trend is broken and heading down.

203 OBV
The Market has finally fallen to where the pros are playing. This was your big warning. A little more neutral now.
 !
207 VIX
Yowsers, Now looking a bit “toppy” but expect high VIX readings until the Fed pegs a rate.

209 VIX Evaluator
Zoom to the moon.

211 S&P500 over 50 day
Only 28.6% stocks are above their 50day MA. But then again this bad boy looked weak heading in to the sell off. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Ugly Ugly Ugly stay out of this sinking ship market.


301 NASDAQ Summation
Nasdaq last to crumble, now on express to hell.
 !
303 Aggressive Defensive
This baby was a beacon of truth last week It told you possible head-fake. It was! Now it says get ready the selling continues but perhaps hitting bottom.

305 Consumer Bonds vs Equities
Consumer flat @ Christmas, DANGER should be rising like mad. Bonds sell well as fear is back.

307 Bond Direction
Long term sideways indifference. Short term buying.

309 Sectors
Consumer and Nasdaq selling, defensive and utilities heading up relative to the S&P500 BUT that does not mean they are gaining, in fact they are dropping - just slower. 

311 Nations
Abandon all hope global sell off

313 Major sectors
Glimmer of a bounce in gold that has set new low recently. Bonds perk up. Sign of fear!

! = Pay attention this chart is important this week.


What I Find Interesting
Last week I said I am convinced that the 2008 crash was due to excessive credit and the solution has been so far, more credit. The world is awash in easy money and could catch up to us again in 2016.  Much of that credit bubble is in High Yield bonds.  Look at this from Citibank research, it shows a heatmap of the high-yield bonds. The red are the ones are the ones in trouble.



I am writing a series of articles to explain just what the problem with that is. In the post last week I talked about the junk bond crisis and that was well timed because this week the whole thing started to come off the rails. Even I was surprised by my timing.  I agree with Carl Icahn who says there is more to come. I suggest you read my post again, I clarified a few points that people said were over their heads and added a few graphics, but the message is the same.  Here is the first posting: The 2016 Credit Crisis Part 1: Junk Melt-down. (Don't miss the charts marked Hall of Shame and video of Carl Icahn and BlackRock's CEO.)


Interesting Rates
As the U.S. federal reserve hims and haws about an interest rate increase, the traders are already doing it. Look at LIBOR climb:



Kinder Morgan
Poster child for the stupid things you can do with borrowed Junk Bond money, Kinder Morgan in the last three years is now in debt some $40 billion, about half went to hopeless acquisitions and the the rest unnecessary dividends.

It was those juicy dividends that sucked in a lot of greedy fools. As mom and pop gobbled up shares, the executives were selling big blocks of founder stock and even bragging that their firm dose not have stock options for executives. Even before Kinder Morgan cut its dividend, the stock’s yield was a warning sign. In early September, for example, with Kinder Morgan’s shares trading at around $31, the stock was yielding 6.3%. By mid-November, as the shares continued to fall, the yield shot up to nearly 9%. By the time the dividend was cut, the stock was trading at less than $16 and the yield was a clearly unsustainable 13%. If it is too good to be true . . . it is. When a yield starts to look completely unrealistic, the stock market is telling you that the story might not end well.


Kinder Morgan started out life from the ashes of a similar disaster. Their first transaction was by Richard Kinder and his partner, for $40 million back in the late 1990s -- they acquired Enron Liquids Pipeline. That's twice the public was burned by the same scam. If there is one thing the boys at Enron taught Richard Kinder . . .Wheeeee -- sfun ta spenz da money weez dona gotz!



What Works Now
Well Short anything works, but beware a snap back this week. Yes I know there are 2X and 3X juiced versions of these, but those are even more risky.

Short Junk Bonds (recommended in my posts in late October (what a call))


Short US Midcap 400


Short Canada (how long have I been telling you about this trade)

Short Oil (Oh I wish I had)

Short Emerging Markets (oh I am glad I did)

Short Natural Gas (wow)


Last Week
The S&P 500 declined over 3% in the wake of massive pain in the high yield sector.  Interest rates declined, driving performance for Treasuries that have longer duration, and the dollar declined against other major global currencies on the week despite an impending rate hike from the Fed.  Emerging markets continue to suffer mightily and every U.S. market sector was down. 

The USO oil fund was down 11% in a week. The fast money was short about 240,000 WTI futures contracts this week, that is a new record in the futures market. Natural Gas prices are partying like its 1999. 


The Canadian Peso and the Mexican Peso got a nasty whacking.  If you live in the USA this is going to be a great winter to see Cancun. Alternately this summer party in Whistler style or Quebec City history. It could be worse, these days the South African Rand is not worth the paper it is printed on.





Its All About Yellen or Is It?
This week the Federal Reserve meets and the whole market expects a rate hike. The Fed is painted in to a corner, keeping rates too low too long have just like Japan, distorted the markets and inflated a bubble. But the global economy is falling apart and so is the U.S. market. Nasty.

Friday this coming week will be interesting. The markets could rally if they feel there is clarity from the fed, or they could rally on unexpected rate hike delay, more candy for the baby. They also could (should) blow-up if for no other reason than things are not going well now coupled with new higher interest rates. In the short run it is all about the Fed, and it is going to be volatile. In the long run, it is going to be a case of "it is all about the economy, stupid". I can tell you there is a much big market sell-off coming and the only question is when -- Now or in the spring?

What I Think
Well last week I told you that the  prior week ended with a big surprise because it rallied strong. Fortunately sanity returned this week, and we had the worst sell off since August -- my short positions payed off huge! I took partial profits Friday, probably too soon but no one ever went bust taking a profit. I still am in cash and a few short bets. 

Do you recall this chart from December 5?

Well NOW it looks like this:

I just don't see any happy ending here.

I also introduced you to the High Yield sell signal. It warns to stay out of equities when debts are distressed. This week it still is in trouble, and accelerating.



Please be very careful this week, the Fed sets rates later this week, and the big boys have a huge amount of money net short, one brief rally with a tiny blip-up and we would have one very nasty short squeeze.  It is best if you are playing with nest egg money to go to cash. For small investors I would say raise cash, but I told you that weeks ago. If you love the thrill of the chase you could bet your gambling money on a few short positions. Again, we might get some sunshine to carry us through Christmas, but we are in a global slowdown and sometime from now up until Spring 2016 the markets will see that too.





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


Don't squint, All graphics can be enlarged by click on them.