Saturday, 30 May 2015

May 30, 2015 – Weekend Market Comment


May 30, 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 
The Dow Jones industrial average ended about 115 points lower after falling more than 150 points during the session. The blue chip index posted a 0.95 percent gain for May. The S&P 500 ended up 1.05 percent for the month, and the Nasdaq outperformed with a 2.6 percent monthly gain. U.S. stocks closed lower on Friday, the last day of trade for the month, as investors digested economic data and remained cautious on continued concerns about Greece. The Dow Jones Industrial Average closed down 115.44 points, or 0.64 percent, at 18,010.68, with General Electric leading laggards and Merck the greatest advancer.

Gains in U.S. Treasurys on Friday pushed the 10-year yield to its lowest level in four weeks, but wasn’t enough to claw the market out of a monthly loss.

Benchmark 10-year notes gained 10/32 in price to yield 2.097%, the lowest closing level since April 30.

The S&P 500 closed down 13.40 points, or 0.63 percent, at 2,107.39, with industrials leading all 10 sectors lower. The Nasdaq closed down 27.95 points, or 0.55 percent, at 5,070.03.



What I Think  
You know the old saying, when you are playing poker
you should look around the table and decide who the sucker is, if you can't figure  out who that is... it is you. Below you will see the weakness in the OBV I pointed out last week continues. I also said if there was trouble expect one last up turn in the 20 year treasury, just when it was falling apart. Well folks the treasury is rising as rates fall again. 


I am convinced that the smart money is stepping back from the table. At a market top there are fewer and fewer buyers and they are generally the less experienced players. When they stop buying, there is no one left to hold up the market, so the market has a correction. 

Last week I said there were a number of negative signs cropping up and that I have moved quietly  out of speculative plays and raised some cash. If you did that you were pretty happy this week. Signs of weakness are everywhere. European markets were down pretty sharply at the end of this week, and China also had a retreat. Meanwhile the on the NYSE the decline in the transports is a divergence we can't ignore. Add to that my new favorite concern the US industrials are falling. For a typical example look at Ford. Despite being the world's most profitable automobile manufacturer. Ford also has braging rights with the Ford F150, the top selling U.S. vehicle, now even more popular with falling gas prices. Still the share price of Ford struggles. The party ended in March and for that matter, hasn't really been much fun since the first half of last year.

I also pointed out a few weeks ago this long term picture of industrial production. Let not forget this graph because falling industrial production is always a part of each major market sell off.


The DOW composite is now touching it's 200 day moving average, there are a lot of programs designed to sell the market it the DOW breaks the 200 day moving average. On the other hand, when this happened last fall it was a great opportunity. Notice the slope leading up to the fall 2014 situation was a pause in a dramatic uptrend, this time it looks a case of "apathy after going nowhere" for way too long. 





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
When this chart shows a green line above a red the trend is up, in short this is a bull market. Never short a bull market. 


Primary Sell 
With a slightly rising put call ratio, the "Smart Money" is buying a bit less insurance, but it is still anemic. Don't panic yet. The lack of conviction is a sign of indecision and a softer summer market.


NYSE New High Low
Looks like we are back on a clear uptrend. Pay attention to this graph, it is a large part of why I say the long term market looks strong. Notice I said long term.






OBV
On Balance Volume is not keeping pace with the current market, and that was true for 2 weeks! As I said last week, this indicator can generally spot trouble far ahead of my other indicators. That said, it also is twitchy sometimes diverging when it should not. Generally what this is telling you is that the big players (smart money) are not most of the money behind this week's action. Honestly this trend is deeply troubling, and why I am raising more cash, this chart says to expect "A Swoon in June".  


VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.



They say big sell offs come from complacency and forgetting the last crash, it often takes about 8 years to forget, as that complacency slips in, people don't run for protection as easily. As pointed out in Bloomberg, the VIX these days just does not pop on bad news like it used too. Yup that is complacency.  

Here is a very interesting long term chart. This is the VIX instead of absolute value, it is in change in percentage... as you can see sell offs follow 4 years of low volatility in the VIX. Oh my... this does not look good at all. 

That said, I do want to remind everyone, though, that timing complacency is extraordinarily difficult. We'll top on complacency, but you'd get so many false signals before then that it's not really worth trying to game it and this is STILL A BULL MARKET.




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 this bull market.  


Aggressive Defensive Chart
Defensive issues are clearly leading as people exit the more speculative midcap 400. Yet another vote for an impending mild correction. 


Bond vs Equities
With an upcoming Fed interest rate hike anticipated, U.S. bonds should be dropping but this week they are rising, showing a real flight to safety. The same flight to saftey I predicted would precede any market pull back.  At least the consumer remains strong , I find some comfort there. 


Here is the big picture look at U.S. bonds (ticker TLT), the red line is a 50 day moving average ... as clearly the big trend is investors are shunning bonds in anticipation of a rate hike. However, look at the short term green line as bonds still are being used as a safe haven this week. It is kind of disturbing when people are still buying bonds in the face of an upcoming rate hike. 




Green Arrow Chart
Last week we had a new green arrow, but I said it could be short lived and yeah it looks half hearted already.



Nasdaq Summation
Nasdaq is the only bright spot left in the market but the summation index says  ... forget about it, anticipate a pull back. 



S&P500 Over 50 Day
Well this is just putzing around, as would be expected in a sideways market.



Sectors
Again the NASDAQ is our star this week. That is good news, don't expect it to continue.
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. 

Unstable China
Still more trouble from China's coal miners tank in a big way read about here in the Wall Street Journal.

We want fairness. There is no fairness if you do not let us cheat.
I am shocked and appalled, Snort giggle, here is a must read: the Daily Telegraph on exam cheating in China


"A Perfect Storm"
Not that in America there is not a some denial going on. A new report by The University of Notre Dame, commissioned by the law firm Labaton Sucharow, which represents whistleblowers, has some alarming numbers to add to this well-trodden narrative. The report surveyed more than 1,200 people in the financial-services industry to look at whether increased regulations, along with calls for a cultural change, have had any demonstrable effects. The conclusion? Wall Street feels it is still corrupt and incompetent. Who knew?

This week's example, Dick Fuld said that he did not speculate his firm Lehman brothers in to bankruptcy. Yup it was just fine, it was those former Goldman Sachs officials in the government, that  used this as a chance to destroy his firm. Dick whines about how Lehman, was caught in a once in a hundred year "financial perfect storm" that no one could have seen coming. 

Really?  let's face it folks, how could a humble banker, who made only $500 million during his time as CEO, be expected to know it might be bad business to give mortgages to people with no income?




What Works Now
I hope you took some profits in those hot semi conductor firms I put you into a few weeks ago. Here is AVGO, SWKS and NXPI



Short Emerging Markets, I continue to hold EUM the short emerging markets fund. With China growing slower and industrial production dying in the USA it can not be much of a party in the third world either. Not that everyone agrees with me, such as this from the economist,  as people still cling to hope. 


Summary
We are in a bull market, therefore you should only be long. A pull-back in a bull market is a buying opportunity.  Clearly from the Nasdaq summation and the OBV chart we are about due for a decrease in acceleration, perhaps even a pull back, so take some profits and check each evening your own OBV chart. Yes there is still some hope in the NYSE High Low chart and the primary sell chart is far from full panic, even the VIX is not reacting upward yet. 

Diverging indicators are a sign of a rift in the market, it often shows a decrease in participation and prices at "perfection" -- that is common as the season switches to the summer low volume trading period. I would proceed long with caution, and be very aware of any spikes in the VIX and softness in the OBV indicator, I have lowered my risk by buying a few good stocks and stable indexes and raised my cash level. 






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, 24 May 2015

May 23, 2015 – Weekend Market Comment

May 23, 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 lower on Friday, failing to hold highs touched during the session, as investors eyed inflation data and Fed Chair Yellen's speech ahead of the long weekend. The S&P 500 and the Nasdaq failed hold gains in the close. Earlier, both indices extended gains to trade higher, with the Nasdaq briefly above its record close of 5,092.09. The Dow closed near its lows for the day, about 50 points lower, despite Goldman Sachs ending about 1.4 percent higher at a 52-week high to lead blue chips gains. Financials were the week's third-best performing sector in the S&P. The Dow Jones Industrial Average closed down 53.72 points, or 0.29 percent, at 18,232, with Boeing leading laggards and Goldman Sachs and Apple the greatest advancers. The S&P 500 closed down 4.75 points, or 0.22 percent, at 2,126.07, with telecommunications the greatest of nine laggards and information technology the only advancing sector.The Nasdaq closed down 1.43, or 0.03 percent, at 5,089.36.


What I Think

I thought it is constructive that the stock market continues to trade near highs despite mixed economic data. Uncertainty as to when the fed will try a rate hike makes it hard to be too enthusiastic especially with a Fed chair that warns the market is too highThe market has been supported by "ultra-loose" monetary policy around the world and cash from corporate balance sheets being put to work in the form of dividends, buybacks and mergers and acquisitions. In short this folks is financial engineering, not true economic strength. The moves are a clever way to return piles of offshore cash to share holders (read executives and managers with stock options) without corporate tax. 

Many traders noticed the 0.8 percent decline in the Dow transports was weighing on equities. Pressured primarily by airlines, the index lost about 2.3 percent this week, its worst since March 27. Transports are a direct link to the economy... if we're not shipping as many products we're hurting transports... so traders watch the transports, but in this case goods are still shipping, the real issue is airline stocks went too high too fast and are pulling back as the price of oil rises. 

Here is a chart, the black line is the price of oil and the blue is airline stocks.

If goods were not shipping, I would expect major couriers to plunge, but that is not happening. In fact since the end of 2013, FedEx is up 28%, not bad considering (like airlines) fuel is a major cost for this firm too.




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
We continue to consolidate sideways anticipating a break higher or lower, of course who knows but odds are the break will be in the direction of the trend, and when this chart shows a green line above a red the trend is up. 







Primary Sell 
With a slightly falling put call ratio, the "Smart Money" is buying a bit more insurance, but it is still anemic. The lack of conviction is a sign of indescision and a softer summer market.



NYSE New High Low
Looks like we are back on a clear uptrend. Pay attention to this graph, it is a large part of why I say the long term market looks strong. Notice I said long term.


OBV 
The basic assumption, regarding On Balance Volume analysis, is that OBV changes precede price changes. The theory is that smart money can be seen flowing into the security by a rising OBV. When the public then moves into the security, both the security and the On Balance Volume will surge ahead.

If the security’s price movement precedes OBV movement, a "non-confirmation" has occurred. Non-confirmations can occur at bull market tops (when the security rises without, or before, the OBV) or at bear market bottoms (when the security falls without, or before, the On Balance Volume Technical Indicator).


The OBV is in a rising trend when each new peak is higher than the previous peak and each new trough is higher than the previous trough. Likewise, the On Balance Volume is in a falling trend when each successive peak is lower than the previous peak and each successive trough is lower than the previous trough. When the OBV is moving sideways and is not making successive highs and lows, it is in a doubtful trend.

On Balance Volume is not keeping pace with the current market, and that was true all week! So put your antennas up! This indicator can generally spot trouble far ahead of my other indicators. That said, it also is twitchy sometimes diverging when it should not. Generally what this is telling you is that the big players (smart money) are not most of the money behind this week's action. 





VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12 after hitting a year-to-date low of 11.82.


This indicated that traders expect very little volatility in the near-term, and is probably a sign of investor complacency. Other market indicators, like VIX futures spreads and the ISE Index also showed a lack of caution intraday. Notice the CCI indicator on the top of my VIX chart, it goes brown when the CCI dips below -100 and as you can see the market seldom goes up for much longer than a few days to a week or two once the VIX CCI breaks -100.

 



VIX Evaluator
Don't forget this is an experimental VIX indicator. Dropping as fear subsides.


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 this bull market.  


Aggressive Defensive Chart
The market is up and aggressive is battling defensive as you can see from the slow stochastic on the top, this run up is over done, in December the pull back was sharp, but in February over done lasted a month of bull market continuation.



Bond vs Equities
Equities lately (up to mid this week) clearly did better than bonds. Expect this continue if rates move up, equities will be the only game in town. The consumer remains strong too, I find some comfort there.


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. 

Look we have a NEW GREEN ARROW. Looks like the market is expected to rise for the next while! That said in a consolidation it can be short lived.





Nasdaq Summation
As you can see the NASDAQ has been moving up, but only now is the summation index. Generally we are seeing great things in high tech. Apple had a strong week, and so did Semi-conductors. There was weakness in bio-sciences and healthcare that have been perceived as over bought. 





S&P500 Over 50 Day
Well this is encouraging the market is buying a broader range of equities, a sign that the pros see that we have come to far on the large caps and see value in more good small companies. 


Sectors
Again the NASDAQ is our star this week. That is good news.
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. 

Unstable China
I loved this piece in Fortune Magazine Showing how a Chinese billionaire lost half his fortune in hours. I have always maintained that the whole Chinese finical system is a scam, and that most of it is based on wild speculation. Stories like this help back that up. 


The Calendar
I have talked about sell in May and go away, but June is actually the worst month for the market over the last 10 years, that's not to say that pulling in your horns in May is not prudent. 

The simplified rule is to invest in the six months November 1st thru April 30th and then switching to safe fixed income products for the rest of the year. If you back test this strategy since 1950 with an initial investment of $10,000 in the DOW, you would have had gains of 6,740%. If you had invested the same $10,000 from May thru October, you would have lost $1,024. This is pretty compelling statistics especially when you also consider that if you had invested in November 1st thru April 30th, there were 48 years with gains and 14 years with losses or a ratio of 3.5 to 1. On the other hand, May 1st thru October 31st had 37 gains to 25 losses. Only three years had double digit losses during November thru April and they all coincided with financial crisis.  If you only used the last 26 years for the study, the results improved to gains of $585,910 versus $498


Semi on the Rise
Semiconductor stocks are down for so far in 2015, this decline in semiconductor stocks is reflective of the long-term decline in personal computers, or PCs, because most semis are tied to them. However this is short sighted, because these chips are also in cell phones like the iPhone 6 and hit products like the GoPro camera also memory chips for tablets and many other non-pc type devices like home appliances, cars, routers, media servers and semi drives. The last week has been strong for semiconductors. You might look at some of the up and comers in chips including these symbols AVGO, QRVO, SWKS and NXPI also the tried-and-true king of memory chips Micron ticker MU. Market is stretched, so don't bet the farm and set your stops tight.

When tech leads the market and smaller firms do well it is the sign of underlying strength in the economy. 


Summary
We are in a bull market, therefor you should only be long. Clearly from the VIX chart and OBV chart we are about due for a decrease in acceleration, perhaps even a pull back, so take some profits and check each evening your own OBV chart.  The Green arrow chart and the aggressive defensive chart are telling you the market might be ready to break out but it will not be as strong as what we saw in the fall.  Diverging indicators are a sign of a rift in the market, it often shows a decrease in participation and prices at "perfection" -- that is common as the season switches to the summer low volume trading period. I would proceed long with caution, and be very aware of any spikes in the VIX and softness in the OBV indicator, I have lowed my risk by buying a few good stocks and stable indexes and raised my cash level. 


Wall Street Week Returns

As a teenager some of my early interest in the markets came from my father watching the American PBS show Wall Street Week. The show began January 7, 1972 and was officially titled Wall Street Week with Louis Rukeyser during the 32 years he hosted from 1970 to 2002.

The new "Wall Street Week" features Anthony Scaramucci and Morgan Stanley senior adviser Gary Kaminsky as co-hosts. The new show airs Sunday mornings on Fox affiliates in select markets, and is available for streaming and on-demand viewing Sunday mornings starting at 11 AM ET on wallstreetweek.com












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, 16 May 2015

May 16, 2015 – Weekend Market Comment

May 16, 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 narrowly mixed in choppy trade on Friday, as disappointing data weighed on investor sentiment amid dollar declines and lower bond yields. The S&P 500 gained 1.6 points to set a second record close for the week, after ending at a high on Thursday. The Dow Jones industrial average also closed higher, less than 20 points below its record close. The Nasdaq ended mildly lower, remaining within 50 points of its closing high. The major stock indices fluctuated around the flatline, with the S&P trading briefly topping its closing high set on Thursday but holding below its intraday record.

The Dow Jones Industrial Average closed up 20.32 points, or 0.11 percent, at 18,272.56, with Cisco leading gains and Microsoft the greatest laggard. The S&P 500 closed up 1.63 points, or 0.08 percent, at 2,122.73, with utilities leading seven sectors higher and financials the greatest laggard. The Nasdaq closed down 2.5 points, or 0.05 percent, at 5,048.29.

What I Think
The market is reflecting a calmer bond market situation. Yields are down again. That should be supportive to the market. One of the reasons stocks are going higher is people are reallocating out of fixed income. Yes the Market is Calm, perhaps too calm, readers will notice this week that the VIX is flirting with what normally would be it's lower limit. Also the pros are picking mostly safe bets (notice DEF in the sectors chart and renewed growth in the NYSE High Low Chart) and so the S&P 500 over 50 day chart is still advancing timidly. No one expects trouble so we drift ever upward. When Wall Street is complacent ... I start to get nervous.


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
We continue to consolidate sideways anticipating a break higher or lower, of course who knows but odds are the break will be in the direction of the trend, and when this chart shows a green line above a red the trend is up. In fact you can create a full trading system on this graph alone, see CME4PIF School lesson One and so far in the last 10 years it would have served you well to be long when green is over red. 





Primary Sell 
Smart Money is not buying insurance, but it is anemic. 




NYSE New High Low
Looks like we are back on a clear uptrend.




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 not keeping pace with the current market, however for just one day, not enough to panic over. 



VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12. that's near the historic low, no reason for it to bounce from here but hard to imagine it a lot lower. Even the CCI (top of chart) is almost to oversold territory (brown area).




VIX Evaluator
Don't forget this is an experimental VIX indicator. Looks like it might be trying to continue down, but far from clear.




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 this bull market.  


Aggressive Defensive Chart
The market surged so of course Thursday's surge is going to be more in MVV than DVY but notice how StochRSI looks overdone.




Bond vs Equities
Well up until Friday equities clearly did better than bonds. Expect this continue if rates move up, equities will be the only game in town.



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. 

Still not the best time to enter the market. Pay special attention to the lower portion of this chart, performance has begun to return. We are close to drawing a green arrow.




Nasdaq Summation
Perhaps a return to high tech.



S&P500 Over 50 Day
Consolidation is bitch, this thing just wiggles and this week looks anemic as it did two weeks ago, yes I see it is climbing a bit. 



Sectors
Notice as of Friday a strong move in defensive ETF like utilities DEF while former superstar banking pulls back relative to the S&P500.
Very inconclusive. 
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. 


VISA
Regular readers know I love the world wide monopoly on the "new money", VISA is one of my favorite stocks. Visa Inc. and MasterCard Inc., the world’s biggest payments networks, climbed the most since October after China’s government indicated it plans to end a monopoly in bank-card clearing. Rules published a couple of weeks ago by China’s State Council, which take effect June 1, clear the way for Visa and MasterCard to gain a foothold in that country. It’s the most explicit China’s government has been about its plans to open up the market to U.S. firms.


Philippians 
Here is an interesting chart ... it shows some National indexes against the SPY S&P500 ETF. The brown line is the Philippines ETF EPHE experiencing a nice bounce after investors look to renewed growth. You can learn more here, 3 reasons foreigners can't get enough of Philippine stocks. That article is very polite but the truth is this is just the Sweat Shop De Jure, with out the urban filth of India and the tyrannical Chinese government


Are We Overvalued
Consider this, if you knew the future and wanted to be an idiot, you would have bought at the last peak about 8 years ago and held on, you  would have gone through the worst draw down in our lifetimes, and today you would still be up 80%. Considering the S & P historically gains 9%  a year, the run up from 2009 to now has been amazing. A correction here would not be unwarranted. 

You might want to look at this bit from MarketWatch, It shows expected returns following big bull markets like the one we are in.
Stocks are overpriced, overleveraged, headed for trouble


Summary
We are in a bull market, therefor you should only 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, so take some profits. Readers should note that DEF the defensive ETF and the OBV indicator show we are nervous and buying only safety such as large stocks.  The Green arrow chart and the aggressive defensive chart are telling you the market might be ready to break out.  On the other hand Thursday's buying spree and the primary sell and Nasdaq summation chart says the experts are still buying. Sounds murky? Welcome to fun of a sideways market.




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.