Sunday, 27 September 2015

September 26, 2015 – Weekend Market Comment

September 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. For full details read my disclaimer (link at the bottom of this page).


The Blah Blah Blah (courtesy of CNBC)
U.S. stocks closed mixed Friday, pressured by a plunge in biotechs, as investors digested Nike earnings and Fed Chair Janet Yellen's remarks.

The Nasdaq composite closed down 1 percent after falling more than 1.5 percent in afternoon trade, pressured by decline of nearly 5 percent in the iShares Nasdaq Biotechnology ETF (IBB). IBB had its worst day since April 2014, falling in record trade volume to below its closing low from the Aug. 24 "flash crash." The index closed in bear market territory, or more than 20 percent below its 52-week high. Forty-five percent of the Nasdaq 100 also closed in bear market territory.

The Dow Jones Industrial Average closed up 113.35 points, or 0.70 percent, at 16,314, with Nike leading advancers and United Health the greatest decliner. The index ended the week 0.43 percent lower. Nike was the best performer for the week, while Caterpillar was the worst. The Dow transports closed up 0.89 percent, but down 2.31 percent for the week. The S&P 500 closed down 0.90 points, or 0.05 percent, at 1,931.34, with health care leading three sectors lower and financials the greatest advancer. The index ended the week down 1.36 percent, with health care the worst weekly performer and utilities the best. The Nasdaq closed down 47.98 points, or 1.01 percent, at 4,686.50, down 2.92 percent for the week.



What I Think


Well I said last week the Nasdaq was in danger due to weakness in the former market leading biotech sector.

It is no surprise Caterpillar had a miss since every country in the commodity business is in the dumps and China has a building slow down. Duhh.

However as this pull back has started to accelerate I begin to wonder if the situation is not worse than we think.

The gold bugs were out in force this week predicting that in fact his is the bottom for the gold sell off. I think its early to call this one, but an interesting chart none the less.






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
To learn to use the Bull Bear line go to Lesson One in the CME4PIF school (link at bottom of page)

We have a cross, the red is over green and this is officially a bear market.  I would not take any aggressive positions until Green returns atop of red.

Just look at this chart. If you have any delusions that this is not the road to hell then I would suggest you wouldn't notice an elephant if it sat on you. Or maybe you took some advice from this idiot?


NYSE New 52 Week Highs - New 52 Week Lows
Learn to use this chart it is in Lesson 5 of the CME4PIF School there is a link on the bottom of each weekly market comment.

Well as I said we owe a big debt to this little chart for tipping us off to the recent correction. As I feared we are in bigger trouble than a simple correction.
 



In fact just to show you the power of the 52 week High Low Chart, I thought I would show you what a blind investment using it could do. Here I show the Ultra short small cap ETF (ticker TZA). This is how it would have done if you simple bought that ETF when (on the above chart) the yellow line went over the red about Aug 4.  Now early August would have been very early, but look how well it went anyway, about a 26% gain in 2 months!

 


Non-farm Payroll Employment Index
As a consumer economy America is dependent on strong employment. This chart alone is the brightest spot on this weeks charts! It is the only reason I am not stuffing U.S. dollars under the mattress.


Industrial Production
America is nothing without manufacturing might. This recent dip is not a good thing. Looks a little better this week, at least it is not falling.



Market Renko
Renko charts are not based on time (note the funny date scale) and only draw a new brick if the market moves in to a new territory. They really can simplify the whole question of direction.

And down we go . . . should be clear enough.



Section 2: Short Term Timing
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 a bull market.

Primary Sell
Experts are buying insurance, by the bucket full. Still very dangerous.

On Balance Volume
Pay Attention: 
This is a OBV divergence. It means that the big funds are pulling out of the market. There is a stink and they finally know it. All that is left is the buy and hold "suckers". You read my market comment, so fortunately that is not you.



VIX
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 23.  It is very dangerous to play the market when the VIX is over 20.



VIX Evaluator
Don't forget this is an experimental VIX indicator. I love it when all the charts are singing the same song. This showing you fear is high and rising.



S & P 500 Over 50 day
Well here is your bounce. Some 35% of S&P 500 stocks are now above their 50 day moving average. A positive sign. Last week I said "I would bet money this turns down next week." Pay up bee-otches.


Green Arrow
Wait for a green arrow before putting new money to work. Recent signals have been of little value until we break out. Well it was a hell of a dead cat bounce. It even caused a green arrow, but ignore green arrows when bull bear lines look this bad. This bounce was impressive operative word WAS.




Section 3 Allocations and Sectors
OK Now you know  the market direction, where should you put your money?

Nasdaq Summation
This chart tells us if technology is a good bet now, general the NASDAQ leads the other indexes. The summation index can often spot weakness-strength before the price reflects it.

Bears Make Money, Bulls Make Money, Pigs Get Slaughtered.

Classic Bear trap. Notice the greedy guys went straight for the bear's honey, the NASDAQ was being bought by the buy the dip crowd, now covered in dip sheet. The bounce was not real and the hard of thinking could not figure it out. Even our summation index was fooled. . . for a while.


 


Aggressive Defensive Chart
The market is dropping. The Midcap 400 expressed by MVV is being sold hard, a very strong signal. Last week I pointed out it already was almost overbought,  headed for a Bull trap well pick your indicator below the whole thing is looking very sad. However that said, the slow stochastic is headed for over sold territory. But it can stay oversold for weeks so no catching knives. 



Bond vs Equities
Consumer stocks are leading the bounce and bonds are under-performing. Bonds are outperforming equities, a sign of fear.





Bond Direction
The direction of the bond market at this time is critical. The Bond Bull began in 1981, we have has a 33 year bull market in U.S. Bonds. When it unwinds it will have major implications.  This fall, as the US federal reserves tries to take off the economic training wheels, interest rates are near zero and so have no place to go but up, then again many feel the economy cant take the shock. The 50 day average line (red) is clearly in a downtrend. The US treasury market is is twice the size of the stock markets. As investors flee bonds who will buy them from fleeing investors?

Bonds have pulled back to the rising 50 day moving average. But now are going higher. You can just FEEL the tension as some run for safety and some fear Grandma Yellen threatened to take away the punch bowl.


Sectors
This chart shows a more classic sell off as defensives like utilities and DEF are on the rise. Well the NASDAQ had to roll over and it did. The Consumer discretionary should be the last to dive as the last bull is lanced through the heart.

    XLF - Financial Stocks - Dark Blue dots
    QQQ - Nasdaq - Purple
    XLY - Consumer discretionary - Green
    XLU - Utilities - Red
    DEF - Defensive stocks - Brown


Nations
It is a global Market are there better place to put your money? Remember this chart is compared to the S&P 500 U.S. market. If the U.S. market is falling these all might be along for the ride, even if this chart shows them rising. When America has a cold the world gets the flu.

    XIU.TO - Canada - Blue dots
    DAX - Germany- Purple
    FXI - China - Green
    EEM - Emerging- Red
    EPHE - Philippians - Brown

Yeah well it is all a mess, there is no safe place to go for equities right now.

Major Market Sectors
This shows the over all U.S. Market, from the equal weighted S & P 500. Below it are broad sectors you might want to look at.

Canada is not a as bad off as it was due to a slow sell off proped up by gold and the fear trade. 

    Canada Dividend Stocks vs S&P 500 in Canadian $ - Red
    Emerging Markets vs  EW S&P 500 - Pink
    US Bonds vs EW S&P500 - Blue
    Commodities vs EW S&P500 - Brown
    Gold vs EW S&P500 - Gold




Section 4: Special Interest

What Works Now
It is a paradox, when trouble arrives you want to be in high quality Bonds like U.S. treasuries, but when interest rates are about to rise you want to short bonds. Well as you know the oil industry is in a world of pain and much of that was finaced with risky junk bonds. So connect the dots . . . Bonds might be in trouble, junk bonds are in trouble for sure. . . So short Junk Bonds. There is an ETF called SJB that is short junk bonds and I recommended to you in the Market Comment this past summer. 



How China Fooled the World
The trouble with a crash is as it is happening people don't believe it, then after words when the media has hit us over the heads we tell ourselves how obvious it was.  I saw videos in 2007 that called credit default swaps toxic waste, and housing prices in the uS were falling. But few thought might Lehman brothers would be gone in a year. So if this sell off is a crash, what will you recognize one days as So Obvious,
well it probably would be China.

I have been talking since 2007 about how China can not have a happy ending to to it's current economic strategy. The last 20 years was a pipe dream based on all time record debt, pollution, corruption and slave labor.  If this is a coming crash, this is why and if not now, I assure you it will be be very soon and huge! The BBC has done a wonderful job showing half the issue, and the rest I will detail in an upcoming CME4PIF thought. Yes I know this is a one hour video but please listen, it is well worth it. Clear your desk get a beverage and a snack and listen to the ONLY story that matter now or will matter for the next ten years. Click Here to View.
 


If you have another hour and want to understand shadow lending and how it built this bubble you should watch; Living in a Bubble:



Market Forecast



Market Forecast Timid Bear

You should be in CASH



Summary
Well the bull bear lines and the 52 week high low are all you need to know. Things are bad and our only rays of hope were in the OBV and the Nasdaq summation, both are a big mess now. Stay in Cash and nibble at some short ETF funds.








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



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


 

September 19, 2015 - Weekend Market Comment

September 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. For full details read my disclaimer (link at the bottom of this page).

The Blah Blah Blah (courtesy of CNBC)
Dow closes off triple digits as Fed uncertainty weighs. U.S. stocks closed sharply lower Friday as investors weighed concerns over the implications of the Federal Reserve's decision to keep short-term interest rates unchanged. Analysts also noted Friday trading would likely see more volatility due to quadruple witching, the expiration of three related classes of options and futures contracts, as well as individual stock futures options. The Dow Jones industrial average and S&P 500 closed down more than 1.5 percent, mildly negative for the week. The Nasdaq composite was off about 1.4 percent on the day and eked out a 0.1 percent gain for the week. The Dow and Russell 2000 closed in correction territory, or more than 10 percent off its 52-week high. The S&P 500 and Nasdaq composite are about 8 percent below their 52-week highs. 
The Dow Jones industrial average closed down 289.95 points, or 1.74 points, at 16,384.79, with Merck leading all blue chips lower. UnitedHealth was the greatest advancer on the week and JPMorgan Chase the greatest laggard. The S&P 500 closed down 32.12 points, or 1.61 percent, at 1,958.08, with energy leading all 10 sectors lower. Utilities was the best performer on the week and materials the greatest decliner. The Nasdaq Composite closed down 66.72 points, or 1.36 percent, at 4,827.23.
What I Think
Last week I said:
"I don't doubt that when the Fed meeting comes they again will not raise rates and the result will be a one day surge follow buy a "sell the news" retreat. But then what? We still have real weakness from China and they continue to dump U.S. treasury bills. Commodities are in the tank and demand everywhere is slowing.  I say it has only been an 8% pull back and the bounce has only been on for a week, so for me the route is to stay liquid just a little bit longer."

Good advice huh? Well the surge was not a day, it was more like an hour and then in came the sell orders.  But the point is you could see it coming, the rally was a bull trap all based on people thinking, hey the fed would not dare raise rates now. After that was over there was nothing left to ponder that was good.  China is going to be in a recession and they only have one customer, the USA. Looks like the USA has bought all the plastic junk it can from Family Dollar and now China has nothing left to offer. Well we have seen this movie before, the US is not buying internationally is followed by the off shore manufacturers not buying raw materials, the commodity nations stop expanding, the sweatshops stop sweating. So the world stops buying from the USA and that tanks the whole thing.
Add to that the run up in financial stocks that NEED a rate hike to be profitable and the sell off is predictable.  I have been saying for a while to avoid financial stocks until the rate hike is real, well now you know why. Below is the chart of a microscopic regional bank in Florida called Zion, but it is also a chart of the crowds sentiment toward the September rate hike. About Valentines day a rate hike in the fall was "in the bag" (click to hear Fischer say it). As the China mess came on the horizon the smell of  contagion slowly gripped the markets. The bear trap started in the third week of August and now, the swan song as the stock goes nowhere in two years. 

With the exception of the OBV chart and the lagging economic indicators I see nothing much good on the charts right now. This is dangerous territory and on the aggressive defensive chart I will show you it has been bad for a while.
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 have a cross, the red is over green and this is officially a bear market. Now there is a chance that this will just perk right up again or this could be the start of a crash. I would not take any aggressive positions until Green returns atop of red.

Industrial Production
America is nothing without manufacturing might. This recent dip is not a good thing. Looks a little better this week, at least it is not falling.
Non-farm Payroll Employment Index
As a consumer economy America is dependent on strong employment. This chart alone is the brightest spot on this weeks charts! It is the only reason I am not stuffing U.S. dollars under the mattress.
 
NYSE New 52 Week Highs - New 52 Week Lows
Learn to use this chart it is in Lesson 5 of the CME4PIF School there is a link on the bottom of each weekly market comment.
Well as I said last week we owe a debt to this little chart for tipping us off to the recent correction. Again I would sit on my cash until green is over yellow. Oh no things just got worse, notice the little arrow that says "This is NOT good." We really could be in bigger trouble than I thought.


Market Renko
Renko charts are not based on time (note the funny date scale) and only draw a new brick if the market moves in to a new territory. They really can simplify the whole question of direction. 
As you can see dat was a hell of a bounce and fast. But in this case I think dat was da end of dis trend . . .
 

Section 2: Short Term Timing
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 a bull market.
Primary Sell
Experts are buying insurance, by the bucket full. Still very dangerous.






























On Balance Volume
Now this is VERY interesting. The big boys are STILL in this market. Yeah its heading down but no running for the exits yet. Positive.

VIX
The CBOE Volatility index (VIX) considered the best gauge of fear in the market, held above 22.5.  It is very dangerous to play the market when the VIX is this high.

VIX Evaluator
Don't forget this is an experimental VIX indicator. Looks like it wants to head up again. Volatility is here for a while and speaking in the Financial Times El-Erian Agrees. 


S & P 500 Over 50 day
Well here is your bounce. Some 35% of S&P 500 stocks are now above their 50 day moving average. A positive sign. I would bet money this turns down next week. 



Green Arrow
Wait for a green arrow before putting new money to work. Recent signals have been of little value until we break out. Well it was a hell of a dead cat bounce. It even caused a green arrow, but ignore green arrows when bull bear lines look this bad. This bounce has been impressive and I think it is already over.


Section 3 Allocations and Sectors
OK Now you know  the market direction, where should you put your money?

Nasdaq Summation
This chart tells us if technology is a good bet now, general the NASDAQ leads the other indexes. The summation index can often spot weakness-strength before the price reflects it.
Nasdaq bounces and more importantly the summation index is turning around. Very Positive but there is growing selling in Biotech, I would not be surprised if this chart failed next week.



Aggressive Defensive Chart
The market is dropping. The Midcap 400 expressed by MVV is being sold hard, a very strong signal. Last week I pointed out it already was almost overbought,  headed for a Bull trap well pick your indicator below the whole thing is looking very sad. Look at the green/brown lines in the third section. About July 20 Defensive stocks started to out perform aggressive.
Over the long term you make more money holding value over growth, but that is because they both get nailed in turns downs, but value not as bad as growth. For me I say hold growth and go to cash or bonds in turbulent markets.

As you can see this mess starting in late July and is only getting worse.


Bond vs Equities
Consumer stocks are leading the bounce and bonds are under-performing. Bonds are outperforming equities, a sign of fear.

Bond Direction
The direction of the bond market at this time is critical. The Bond Bull began in 1981, we have has a 33 year bull market in U.S. Bonds. When it unwinds it will have major implications.  This fall, as the US federal reserves tries to take off the economic training wheels, interest rates are near zero and so have no place to go but up, then again many feel the economy cant take the shock. The 50 day average line (red) is clearly in a downtrend. The US treasury market is is twice the size of the stock markets. As investors flee bonds who will buy them from fleeing investors?
Bonds have pulled back to the rising 50 day moving average. But now are going higher.



Sectors
This chart shows that everyone wants a bit of tech (Google effect), but perhaps that was over done. Utilities lead, but so does the tech heavy Nasdaq -- Weird!
    XLF - Financial Stocks - Dark Blue dots
    QQQ - Nasdaq - Purple
    XLY - Consumer discretionary - Green
    XLU - Utilities - Red
    DEF - Defensive stocks - Brown


Nations
It is a global Market are there better place to put your money? Remember this chart is compared to the S&P 500 U.S. market. If the U.S. market is falling these all might be along for the ride, even if this chart shows them rising. When America has a cold the world gets the flu.
    XIU.TO - Canada - Blue dots
    DAX - Germany- Purple
    FXI - China - Green
    EEM - Emerging- Red
    EPHE - Philippians - Brown
 
Yes I see above the dot line of the Canadian TSX going up strongly, but that does not tell you things are great in Canada, it just is not falling as fast as the USA. When we look at the gold and oil filled TSX by itself, it does not look as good. Down almost 5% in the last 2 months. 



Major Market Sectors
This shows the over all U.S. Market, from the equal weighted S & P 500. Below it are broad sectors you might want to look at. 
I am surprised to see emerging markets doing better. Must be a case of no one left to sell.
    Canada Dividend Stocks vs S&P 500 in Canadian $ - Red
    Emerging Markets vs  EW S&P 500 - Pink
    US Bonds vs EW S&P500 - Blue
    Commodities vs EW S&P500 - Brown
    Gold vs EW S&P500 - Gold
 

Section 4: Special Interest

With or Without You
Following a two-day policy meeting, Fed Chairwoman Janet Yellen said Thursday that policy makers had decided to take “a little bit more time to evaluate the likely impacts” of recent market volatility on the U.S. before acting on interest rates. 
OK the Federal Reserve did not raise interest rates . . . but that does not mean rates did not raise.  Libor, the London inter-bank lending rate, is considered to be one of the most important interest rates in finance, upon which trillions of financial contracts rest.
Banks don't just lend money to one another whenever they like. There is a system. Every day a group of leading banks submits the interest rates at which they are willing to lend to other finance houses. They suggest rates in 10 currencies covering 15 different lengths of loan, ranging from overnight to 12 months. The most important rate is the three-month dollar Libor. The rates submitted are what the banks estimate they would pay other banks to borrow dollars for three months if they borrowed money on the day the rate is being set. Then an average is calculated.


Market Forecast



Market Forecast Timid Bear

You should be in CASH
Summary
So here we are, our indicators in section one say to wait, it is too early to jump back in,  I say it has only been an 8% pull back and the bounce has only been on for a week, so for me the route is to stay liquid just a little bit longer. Yes we see positive looking charts. In particular the NASDAQ summation index looks very strong. OBV is keeping pace that is nice too. But I still think this is a potentially dangerous market until Halloween.
 







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



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