Saturday, 25 April 2015

April 25, 2015 – Weekend Market Comment

April 25, 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 below.

This week I am changing the format just a tad, I am adding sections in the "It all Shows Up in the Charts" section" based on why we use these charts. Here are the new sections
1. Big Picture 2. What the Experts are doing. 3. Timing and sectors 4. Special Interest and Experiments. 


The Blah Blah Blah 
U.S. stocks closed higher on Friday, with the Nasdaq setting another record as investors cheered major earnings reports. The Nasdaq Composite closed at a record for the second day in a row. The index set its first record close in 15 years on Thursday, topping the previous high from March 2000. The S&P 500 ended mildly higher for a new record close. Earlier, the index also touched a new intraday high, while the Dow struggled to shake off a decline as its top-weighted stocks lagged. 

The Dow Jones Industrial Average closed up 21.45 points, or 0.12 percent, at 18,08.14, with Microsoft leading gains and Boeing the greatest laggard. The S&P 500 closed up 4.76 points, or 0.23 percent, at 2,117.69, with consumer discretionary leading four sectors higher and energy the greatest decliner. The Nasdaq closed up 36 points, or 0.71 percent, at 5,092.08, a new record.
Advancers were a touch ahead of decliners on the New York Stock Exchange, with an exchange volume of 765 million and a composite volume of 3.3 billion in the close.

What I Think
Well I real was getting ready for trouble with that big sell off last Friday, only to have the markets rally again. Clearly when the NASDAQ hits a 52 week high you can not call this a bear market. The Bull and bear lines have been telling you its a bull market and clearly being long was where to be this week. I was cautious and raised some cash and was in very stable broad ETFs, like DVY, and yes that was not optimum but it was still a good idea when the market is unstable and consolidating. 


It All Shows Up In The Charts . . . 

Section 1: The Big Picture
These charts tell us if we should even be in the market at all.

Bull Bear Lines

Well of course the big picture is now and has been for several years now, cant be wrong if you are long. 



NYSE New High Low
Still in a long term up trend. 



Section 2: What the Smart Money is Doing.
Remember most people loose money in the markets and a select few make all most all the profits. These are the big institutional investors like Mutual Finds. This is the smart money, so it is important that it participates.


Primary Sell 
Smart Money is taking off insurance, but it is anemic. The danger is that the smart guys keep getting caught on the wrong side of the market, if it goes on too much they lighten up. 




OBV
 
The technique, originally called "continuous volume" by Woods and Vignola, was later named "on-balance volume" by Joseph Granville who popularized the technique in his 1963 book Granville's New Key to Stock Market Profits


On Balance Volume is keeping pace with the current market. A great relief as smart money is still with this market.




VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12. Notice this is about where we might have a double bottom. 



VIX Evaluator
Don't forget this is an experimental VIX indicator. As such I recently changed the look of it to include a shorter term exponential moving average to add a market timing value to it. 





Section 3: Timing and Sectors.
Consider this as fine tuning. As you learned in section one of the CME4PF School most investors don't need to plan the short term, But you can use this section to decide on ratios of risk. For example you can time a strategy of moving from a defensive ETF like DEF and an aggressive ETF like QQQ. or between a ratio of equities and bonds. You could move from broad safe indexes like DIA (the dow 30) and  aggressive equities like Google and Amazon. Remember don't use these  charts to anticipate, and don't do counter trend strategies like shorting the a bull market.  


Aggressive Defensive Chart
Notice the pull back in the mid cap 400 (MVV) Friday just as the NASDAQ hit a 52 week high. Not a good sign but also a one day move is not a trend. 


Bond vs Equities
Well equities clearly did better than bonds. You will see another take on the bond market later in the posting.  




Green Arrow Chart
The Green Arrow Chart tells us when to put new money to work. You can learn about it in the CME4PIF school


Clearly this is not a great time to enter the market. Pay special attention to the lower portion of this chart, flat performance for mid-caps vs the over all market. Where we are really seeing the market run hard is in mega-tech giants like Amazon but the little firms are being ignored. 


Nasdaq Summation
Yes the NASDAQ hit a new 52 week high but notice it did it on a very  weak upward curve. Bullish but not enthusiastic.



S&P500 Over 50 Day
Last week I called this a a fizzle but now it is on the way up again.




Sectors
This chart mirrors what the Aggressive Defensive Chart says. Last week we worried that the new trend is safer stocks like the defensive ETF. Again a nice tip off. As you can see the market was due for a sell off more than it was worried about the above mentioned "Market Forces".
XLF - Financial Stocks - Dark Blue dots
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown



Section 4: Special Interest
In this section I will introduce some new ideas or interesting things in the market. 

The Long Bond Run
As I mentioned before, interest rates one day must rise. Well they must, but the fed has held off that move far longer than I would have guessed. I began reading some interesting ideas about the bond situation. 

First off there is this from Keith Weiner perma bear from Forbes that in effect says there never will be interest on U.S. bonds again?

Then there is an interesting trading system based on the theories of Benjamin Graham. In this system, called the Na├»ve Graham system, is set up with only quarterly changes,  an investor moves allocations from 25% to 75% in steps, from Bonds to broad market equities.  Amazingly this very simple system only had draw downs of 14% in the 2008 crash and is now up to a point where your account would have tripled! 

But a more insightful idea comes from the Economist magazine in this article called Skewiff. In effect the idea is the bonds are for the first time in our life time a bond is no longer a bond but a kind of equity. 

The idea that Graham understood is that when the market does well, bonds don't because central banks increase interest rates, as they rise to stem inflation, and when the economy stalls and equities drop, bonds do well as central bankers cut rates. For over 100 years this all worked well. But what would happen if the stock markets did very well, as they did form 2009 to now, but there was no hope of inflation and the policy makers refused to raise rates? Well the chart would look like this, a bizarre world where both bonds and equities made money. (equities are in green, bonds in gold)

BUT there is a catch, what this also says is there is nowhere to run if this falls apart. If the markets top and fall, there is no ability to cut the interest rates and it might be that both bonds and equities would fall. 

Well before you panic, there is hope in the form of this chart. 


It appears there might be a peak in the interest rate of bonds and that in fact the world finally expects the long run for TLT is over. Interestingly TLT has an evil twin that if TLT drops makes money, it is called TBT, think of it as short TLT.   

Summary
We are in a bull market, therefor you should be long. Clearly from the VIX chart and the sector chart we are about due for a decrease in acceleration, perhaps even a pull back. On the other hand the S&P over 50 chart is telling us the market might continue up but broaden and the primary sell and OBV chart says the experts are still buying.






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, 18 April 2015

April 18, 2015 – Weekend Market Comment

April 18, 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 below.

The Blah Blah Blah 
U.S. stocks closed sharply lower on Friday, following negative news that sent overseas stocks lower, as investors looked ahead to a heavy week of earnings.

The major indices had their worst week since the one ended March 27, closing down about one percent for the week. The Dow Jones industrial average fell 357 points and dipped into the red for the year before coming off lows in the close to eke out a gain for 2015. The Dow Jones Industrial Average closed down 279.47 points, or 1.54 percent, at 17,826.30, with American Express falling nearly 4.5 percent to lead all 30 blue chips lower. The S&P 500 closed down 23.81 points, or 1.13 percent, at 2,081.18, with consumer discretionary and information technology falling nearly 1.5 percent to lead declines in all 10 sectors. The Nasdaq closed down 75.98 points, or 1.52 percent, at 4,931.81, with Apple down about 1 percent.

The sell off was widely blamed on three major overnight events:

  • Bloomberg terminals suffered an unprecedented global outage on Friday, disrupting trading from Hong Kong to London and paralyzing investors for whom its screens have become the central nervous system of finance.
  • Greek Finance Minister Yanis Varoufakis met with IMF officials on Friday, as investors became increasingly nervous about the funding crisis in Greece.
  • Chinese exchanges and regulators announced Friday that they would crack down on over-the-counter margin trading and that they would allow fund managers to lend shares for short-selling. The type of stocks that investors can short sell will also be expanded soon to 1,100, from 900 currently. All of these moves could slow Chinese equities' wild run higher in recent months.


What I Think
I think you have been reading in my comments all this month I have been saying that stocks would march higher and find an excuse to sell off about the 20th of April. Well folks Monday is the 20th of April. Welcome to another sell in May ... ding! right on time.

Of the three excuses for this sudden "revision to the mean"  the only new one is the new rules for Chinese speculators ... many of whom see little difference between the Chinese markets and tossing dice in Macau.

Exactly what is it the Chinese exchanges and regulators are worried about? Well last month alone, there were 4 million new margin accounts in China ... imagine in one month a new investor base the size of Los Angeles piled into Chinese equities. Worse Bloomberg categorized nearly 6% of new Chinese stock investors as “illiterate.” and nearly 60% have not even received a high school education. This market has nearly doubled in the space of 8 months on the back of margin debt that can now be measured as a percentage of GDP and volatility is at a 5-year high. 

Actually if you want to be concerned about something, I think in the long run this video tucked away on CNBC is a much bigger worry. Long Term Debt.

That said, I was able to predict this sell off weeks before this news, so in my opinion it is not (as CNBC would tell you) due to these mysterious market forces, it is simply late April and time for prudent mangers to take profits and lighten up on their positions. We have become overbought, thus the pros know the current prices are not sustainable.  As we go through the charts I will show this and refer back to the news stories above as "market forces". 



It All Shows Up In The Charts . . . 

Bull Bear Lines
Well here is our first example, notice that the light green line (the four day average) can only get so far from the 50 day trend and not revert for a minor pull back. As you can see the market was due for a sell off more than it was worried about the above mentioned "Market Forces".

That said, the main lesson of the Bull Bear Lines is... are we in a Bull Market and the answer is YES. So when the market pulls back in a Bull Market 9 out of 10 times it is an opportunity. This being the cusp of May it should be a bigger pull back than the recent ones. 




Primary Sell 
Looks like the smart money got caught the wrong way as the week ended and now they can't wait to buy insurance. Expect this to continue down for a while.





Aggressive Defensive Graph
As the markets declines high-beta stocks get beat up worse.




Bond vs Equities
Well bonds did better than equities which pulled back Friday. 




S&P500 Over 50 Day
Last week I called this a classic up-turn but in fact it fizzled.





Green Arrow Graph
Last week I said that this concerns me as the market is turning toward big stocks over mid-caps just when it should not. As it turned out dear readers, this was prophetic. Clearly this is NOT a good time to put new money to work in the market.





Nasdaq Summation
Another whipsaw over last week as tech gets hurt in the sell off.  





NYSE New High Low
Last week I said that "The Message here is the money is returning to the market but it is in the big name safe plays." Again another small warning sign that the rally would not hold.




Sectors
This chart mirrors what the Aggressive Defensive Chart says. Last week we worried that the new trend is safer stocks like the defensive ETF. Again a nice tip off. As you can see the market was due for a sell off more than it was worried about the above mentioned "Market Forces".
XLF - Financial Stocks - Dark Blue dots
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown





OBV
On Balance Volume is keeping pace with the current market. A great relief as smart money is still with this market. Remember most people loose money in the markets and a select few make all most all the profits. This is the smart money so it is important that it participates. 





VIX
The CBOE Volatility Index  (VIX), widely considered the best gauge of fear in the market, traded near 14. As you can see the chart hit the edge of the "normal range" and now fear is returning to the market. As you can see the market was due for a sell off more than it was worried about the above mentioned "Market Forces".





VIX Evaluator
Don't forget this is an experimental VIX indicator... Last week I said, "my look how close I am to the edge of my range.....In other words it looks like a run up for a short term and then boom back to a sell off.As you can see the market was due for a sell off more than it was worried about the above mentioned "Market Forces". 




Industrial Production
Now if you want to have the cr@p scared out of you then here is the graph to do it. I don't normal show this graph because normally it says the same thing every week. Industrial Production always falls off in a recession, although often this graph tells you way too late. We have not seen a downturn in this chart since the "great recession". 



Risk
Don't forget the unskilled investor worries about how much they can make --- the pro worry about how much they can loose, Here are two videos that explain why.
Video one: The Lack of Risk Management
Video two: Market Wizzards




Summary We are still in a bull market have begun a pull back. It will be a good time to be long. that said I have been saying for weeks, volatility is making me use safer bets and be less aggressive. Until the trend is stronger I don't recommend any hero plays this well could be a long term topping pattern, although I doubt it. The forecast: RAIN. 

Raise some cash, sell your volatile stocks, mild hedging.  Lets keep an eye on that industrial production. 




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


Sunday, 12 April 2015

April 12, 2015 – Weekend Market Comment

April 12, 2015 –U.S. stocks closed higher on Friday, with the Dow topping 18,000 for the first time in April as investors looked ahead to the official start of earnings season next week.
The Dow Jones Industrial Average closed up 98.92 points, or 0.55 percent, at 18,057.65, with General Electric leading advancers and Nike the greatest laggard. The index briefly added more than 100 points in afternoon trade.
The S&P 500 closed up 10.88 points, or 0.52 percent, at 2,102.06, breaking the significant resistance levels of 2,090 and 2,100. Industrials gained 1.8 percent to lead all 10 sectors higher.
The Nasdaq closed up 21.41 points, or 0.43 percent, at 4,995.98. Three stocks advanced for every two decliners on the New York Stock Exchange with an exchange volume of 671 million and a composite volume of 3.1 billion in the close.


What I Think
I think this week we had some pretty good headlines—high profile M&A that boosted confidence, especially the Shell deal (indicating there) will be more M&A in energy. The big news of teh week was on Friday a major restructuring of GE Capital, including the sale of most of the unit's assets, and will institute a $50 billion stock buyback program with proceeds from the move. In short GE is once and for all out of the banking business and back to focusing on what it does best, make jet engines and power plants. GE jumped 10.8 percent to $28.51 a share, the highest close since September 2008. That said by now you know that I am a technician first and clearly the charts were ready for any excuse to rally until about the third week of April.


It All Shows Up In The Charts . . . 

Bull Bear Lines
Well the bounce back up is clear. As you can see if you buy now your a bit late for the current party but who knows how much the market will give us. Volatility is making market timing difficult. Still dark green is over red, we are in a bull market.




Primary Sell 
Looks like the smart money go caught the wrong way as the week started and now cant wait to be long.



Aggressive Defensive Graph
We are off to the races as small caps outperform the safe bets.


Bond vs Equities
Well Bonds held up well two weeks ago but the clear winner this week is equities. 




S&P500 Over 50 Day
Classic up turn as bargain hunting goes wider.




Green Arrow Graph
This concerns me as the market is turning toward big stocks over mid caps just when it should not. This is important because if we don't see improvement soon, we could have run too far too fast already.  



Nasdaq Summation
Tech is now catching on in fact teh NASDAQ was the big star this week easily outperforming the other exchanges.  




NYSE New High Low
Strength returns to the big board as the upward march continues. The Message here is the money is returning to the market but it is in the big name safe plays.


Sectors
This chart mirrors what the Aggressive Defensive Chart says. The new trend is safer stocks like the defensive ETF. 
XLF - Financial Stocks - Dark Blue dots
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown




OBV
On Balance Volume is keeping pace with the current market. A great relief as smart money returns to the market. Remember most people loose money in the markets and a select few make all most all the profits. This is the smart money so it is important that it participates. 



VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 13.



VIX Evaluator
Don't forget this is an experimental VIX indicator... my look how close I am to the edge of my range.....In other words it looks like a run up fora short term and then boom back toa sell off.

What Works Now
There was a recent article in the Economist that talks about the sudden rebound in interest in the Euro Zone. But in fact as I pointed out in the blog there is a rebound in all emerging market equities. The sudden rush of interest is because all the world is parking its money in the United States (best house in a bad neighborhood). This has caused a huge bounce in the value of the US dollar. 
Here is the German Market

and here is the Emerging Markets ETF

As the U.S. dollar becomes too strong U.S. manufacturers are at a disadvantage. The natural result is the other global markets get stronger.

Perhaps most crazy is the rush to Russian equities in a hope the oil has bottomed and the selling was over done. 


A Reader Writes
I was contacted by one reader of this blog . . . he was talking about how little he is making in this market. I found this quite remarkable because readers following this blog should be swimming in money 9 out of every 10 calls I have made in the last 10 months has been spot on!




Let look at the S and P 500 in the last 10 years . . .




Now lets see a ten year version of my Bull Bear Lines graph. . . .

Well how simple is that? As far I can see, if you were long when the green was over red and then went short when the red was over the green, you were making a freaking bundle! No stock picking, no rocket science just buy the SPY ETF or its short version SH.  How the heck can you not make money in this market? We have just been handed the best 10 years in a long time to get rich and how anyone can snivel that the stock market is not treating them right is most likely following other people than MY advise. Perhaps some CNBC idiot like Jim Crammer.   My guess is that this particular reader has been flirting with countries with commodity based markets (like Canada) and playing energy when he was told NOT TO DO THAT. Now if you want to play commodities when I wrote in "Pop Goes the Commodity Bubble" that the party was over, well your not going to make money. If you go trying to pick a bottom in the energy market because you don't listen when I say NEVER catch falling knives, then you are not going to make money. But don't tell me it is my fault, I lead you horses to the water, its up to you to drink it. 


Summary
We are still in a bull market have completed a micro pull back. It is a good time to be long. I think the run to off shore markets is a tad over done. But the current strong breakout and volatility is making me use safer bets and be less aggressive. Until the trend is stronger I don't recommend any hero plays this well could be a long term topping pattern, although I doubt it. The forecast mild and sunny for a week or two followed by possible warm spring rain .



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