Saturday, 30 January 2016

January 30, 2016 – Weekend Market Comment

January 30, 2016 – 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).

U.S. stocks closed more than 2 percent higher percent Friday, the last trading day of January, after the Bank of Japan unexpectedly adopted a negative interest rate policy for the first time. Encouraging earnings reports, a better-than-expected Chicago PMI report and some stabilization in oil prices also helped push equities higher.

The major averages still posted their worst January in at least seven years. On a monthly basis, the Nasdaq composite fell 7.86 percent for its worst month since May 2010. However, Friday's sharp gains pushed the three indexes into positive territory for the week.







101 Bull Bear
Bear market (red over dark green). The light green line is trying to turn around but a “dead cat bounce” would be expected in a market this negative.

103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow. Still many breadth issues.

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator. 

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

115 Renko
Obviously -- Six black down bricks the trend is broken and heading down, fast. Still no up brick even after a great day Friday.
 !
203 OBV
VERY IMPORTANT – That is strong institutional buying and should be respected. One day does not make a trend, so don’t panic yet but if this continues this strong it will be cause for revaluation of the health of this bear. .

207 VIX
VIX is the fear gage .. well 21 is fear but no longer all out panic.

209 VIX Evaluator
Rounding top… perhaps bear is not well.

211 S&P500 over 50 day
Now only 19.2% of stocks are above their 50day MA. As predicted a dead cat bounce next week?. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Nasty only buy short in this market.


301 NASDAQ Summation
Possible up turn.

303 Aggressive Defensive
Very defensive predicted possible end of bounce here.

305 Consumer Bonds vs Equities
Disturbing, the consumer is lagging. Bonds falling too.

307 Bond Direction
Faltering short term buying.
 !
309 Sectors
Consumer (ticker XLY) faceplant.

311 Nations
Canada surge and fail

313 Major sectors
Gold sells off global markets uptick!



 ! = Pay attention this chart is important this week.



What I Find Interesting
Thursday and Friday were strong up days in the market. The OBV chart says a lot of the buy side strength was from major players like Mutual Funds and Hedge Funds. Of course they went right for the big 8 FANG and NOSH stocks. However American stalwarts like the Ford Motor company experienced no buying at all. I am going to take that as a sign of money managers trying to catch falling knives.




Junk News
Junk Bonds are back in the News. You can read my writing on the dangers of high yield in:
The 2016 Credit Crisis Part 1: Junk Melt-down

and now a new warning from Goldman Sachs on Bloomberg

The majority of the new money can be classified as “tourists” aka renters, not owners. As a class, these tourists are unfamiliar with the risks and illiquidity and only familiar with a recent history of strong returns. Similar to the cracks that emerged in late 2007 in the mortgage market, cracks emerged over the past six months in levered credit.
 

And now a word on High Yield Debt from madam Chairwoman:

Ahem, Yes Janet and the Titanic offered a less than optimal passenger experience with a brisk interest in alternate flotation devices. :)




If you like things a tad more complicated you might also enjoy this well thought out article on Volatility and rebalanced portfolios. Click here: A Case for High Volatility Strategies 

First and foremost, oil is in a long-term downtrend and the current bounce is still considered a counter-trend move. The big victim is Russia that need oil to hold the economy together. With 13% inflation and no growth, The Economist says the Russian Economy continues in freefall.


What Works Now
Cash or start to buy short ETFs like MYY or be long U.S. Treasuries with the TLT ETF.




If you want to buy more short this might be your opportunity this week. 


What I Think
I think this is a bear market and in a bear market one must expect bearish outcomes. Bounces up are to be taken as buying opportunities to go short. 

Last week I made notes on the 303 Aggressive/Defensive chart:
 

Now here we are this week with an updated version of the same chart:

This tells me this dead cat bounce should last only a week, if it goes on longer it might be a true turning point.

Now if you will excuse me, I have made some rum punch and my hammock is calling . . .


 
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, 23 January 2016

January 23, 2016 – Weekend Market Comment

January 23, 2016 – 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).

Welcome to the Bull Trap. We had quiet a bounce this week as the bulls think now is the time to party like last summer, but in fact it is very likely a trap. I will explain in the What I Think section below. Here is the daily chart of the S&P 500 for the last few days.

 






101 Bull Bear
Bear market (red over dark green) and it is nasty… expect to sell the blips.

103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I was so skeptical of this market, once again market breadth was the clue to run. 

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator and I think once we look beyond Christmas rush jobs expect to see this fall apart. 
!
107 Industrial Production
Not good. Watch this carefully, all recessions have falling industrial production, but data is from the end of Dec.

115 Renko
Obviously -- Six black down bricks the trend is broken and heading down, fast.

203 OBV
The pros are still in as the market. Red is above price -- expect a rally. If red line fails to keep up - watch out below.

207 VIX
VIX is the fear gauge .. well 22 is high reflecting the current bear market, but it is getting better.

209 VIX Evaluator
Clearly trouble

211 S&P500 over 50 day
Now only 17.8% of stocks are above their 50day MA. Dead cat bounce next week?. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Nasty only buy short in this market.




301 NASDAQ Summation
NASDAQ full panic.
!
303 Aggressive Defensive
Very defensive possible short bounce now.

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

307 Bond Direction
Short term buying.

309 Sectors
Small uptick in NASDAQ.

311 Nations
Some Canadian buying based on gold and oil possible commodity bottom?

313 Major sectors
Some selling for Gold and Bonds from the full out panic!








 ! = Pay attention this chart is important this week.



What I Find Interesting

Two days after taking control of the world’s most powerful political party in November 2012, Xi Jinping (shown here with a glass of fine chardonnay) warned his fellow Chinese Communist Party members that their six decades of rule was in jeopardy because of what he saw as endemic corruption eating away at the party’s authority and effectiveness. Within a month, a deputy party secretary in Sichuan Province, Li Chuncheng, became the first senior official to fall under Mr. Xi’s anti-corruption campaign. Many other officials followed over the next three years, both “tigers” (senior officials) and “flies” (lower-ranking cadres).

The Chinafile this week web site this week had a very interesting interactive chart called catching tigers and files, graphically showing the some 1,500 officials in China who have been recently arrested for corruption. The lucky ones got 10 plus year prison sentences, over 50 officials got life sentences, and more than 12 will be put to death. 


Some Basics
One of my readers was asking why you can tell if there are problems in the market by comparing the two versions of the S&P500 ETF the Cap weighted and the Equal Weighted versions. Well first click here to understand the terms

I have always been a fan of equal-weighted indexes as opposed to capitalization-weighted indexes because equal-weighted indexes generally give us more bang for the buck. The reason is that cap-weighted indexes weight the constituents based upon their market capitalization; whereas, equal-weighted indexes give each constituent an equal weight in the index. For example, the S&P 500's fifty-nine largest stocks (12% of the 500 stocks) compose 50% of the total market capitalization of the index, so those top fifty-nine stocks will have an inordinate influence on the daily percentage change of the index. With an equal-weighted index, such as the Guggenheim S&P 500 Equal Weighted ETF (RSP), each component is held in equal dollar amounts (rebalanced quarterly), and, of course, each stock will have an equal influence on the daily change of the index. This means that the smaller-cap stocks, which often perform better in healthy markets, than the large-cap stocks, can improve the performance of the index.

Now lets see it as a market timing tool. I have plotted a line that rises when the Equal Weight ETF (ticker RSP) does well and falls when the Cap weighted ETF (ticker SPY) does better. I drew pick zones during market weakness. As you see the market gets in to trouble when Cap weighted (SPY) out does equal weight RSP.

I hope that helps you understand that we are in a bear market right now, because since the spring of 2015  the broad market has been ignored and all the action has been on a few major players.  





What Works Now
 

 Cash baby . . .




What I Think

I think this is a bull trap. We are in a bear market and in a bear market I expect bearish out comes. I think the chart you want to watch this week is the Aggressive/Defensive chart. 




The market expect a sell off to end like it did last summer, (see green arrow on bottom of chart) when we rallied in to the fall season. However I am more expecting a Bull Trap with a brief run up and fail. See red arrows top of page.

However even if I am wrong, we will simply run up to a double top and sell off going in to MAY. 

But I don't think I am wrong, China is slowing down and so is the world economy. American manufacturing is reporting weak PMI numbers and many major retailers are going to be cutting more than Christmas staff after a very weak holiday season. U.S. retailers saw a 0.1 per cent decline in sales in December from the prior month, while a measure of sales that strips out car and petrol sales and building materials unexpectedly fell 0.3 per cent, according to the Department of Commerce. Total sales were up 2.1 per cent in 2015, the slowest pace of growth since 2009. Macy's cut about 3% of its staff loosing up to 4,800 staff and has slashed its profit outlook after a miserable holiday season. It also closed some 50 stores.
So what I did was take some of my leveraged shorts off and have a bit more in cash but I am still about 65% short.


 

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 January 2016

January 16, 2016 – Weekend Market Comment

January 16, 2016 – 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 the sell-off we have been planning for since July 2015 is upon us. Now the next question is, "how much/long"? Well the answer is, quite a lot and I will explain. I urge you scroll down to read What I Find Interesting including the two links and the What I Think Section if you want to understand and profit from the coming economic depression. 2016 will be a mess.





 !
101 Bull Bear
Bear market (red over dark green) and it is nasty… good thing you were warned.
  !
103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I was so skeptical of this market, once again market breadth was the clue to run. 

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator and I think once we look beyond Christmas rush jobs expect to see this fall apart. 

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

115 Renko
Obviously -- Six black down bricks the trend is broken and heading down, fast.

203 OBV
The pros are still in as the market falls. Could still be a dead cat bounce.  If red line fails to keep up - watch out below.

207 VIX
VIX is the fear gage .. well 27 is numbers like we saw in 2008…that is not fear that is all out panic.

209 VIX Evaluator
Clearly trouble

211 S&P500 over 50 day
Now only 11% of stocks are above their 50day MA. Total despair but perhaps over done … dead cat bounce next week?. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Nasty only buy short in this market.


301 NASDAQ Summation
Nasdaq full panic.

303 Aggressive Defensive
Very defensive possible bounce in a week or two.

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

307 Bond Direction
Short term buying.

309 Sectors
Nothing here but panic.

311 Nations
Global sell off
  !
313 Major sectors
Gold and Bonds full out panic!



 ! = Pay attention this chart is important this week.



What I Find Interesting

If you want to understand the core of the up coming recession you need to read this weeks Economist article: The Yuan and the Markets. As a trillion dollars has fled China depleting its capital reserves. Conservatives claim that China's total debt is about 2.5X GDP -- putting it in line with Greece -- but there are credible fears it could be 5 times that making it the biggest debt in human history.  It is going to be ugly when the masses find out corrupt officials took that money and hid it in overseas real estate, leaving the country the bill. How bad is it? ... would you dare to imagine a nuclear superpower with a 1 billion people in civil war?

In case you missed it, as I said before, to understand the scale of the problem, the 1 hour BBC documentary "How China Fooled the World" is must see viewing.



What Works Now
Short anything: 
Midcap 400 = ticker:MYY 
Dow = ticker:DOG
S&P500 = ticker:SH

or long treasuries and gold
ticker:GLD
ticker:TLT

What I Think

I spend my winters on a small island in the Caribbean. Two days ago, one of my good friends named Ben asked how he could profit form the sell off, and was it too late to be short. The answer the first question is above in the The What Works Now area. The second question is a struggle, I said that there were two forces at work, a junk bond crash (detailed in my blog) and the longer term danger of China's madcap borrowing to build empty skyscrapers and factories that sell below cost. If it is only junk bonds the pull back will be the typical 30%, if China is the cause, it will be way worse. Well the Economist article above convinced me... it is China. Ominous. For those of you that are still long and say they want me to be direct and to the point well ... try this:


As for how bad and how long, you can answer yourself by looking at this graph of the 5000 stocks the make up the U.S. market.  This is the monthly version of the Wiltshire 5000 going back some 20 years and yes if China blows up it could go to 6000. Click on it to enlarge it and study it, this is the key to the major market trends and as you will see the trend is down. Notice how rare red bars are like we have now. Notice volatility by how high the green ATR line is. 


So Ben and all my readers, the answer to the question is; no it is not to late to short this market. Conservative investors raise cash all others sell short using the ETFs above. 

On the bright side: I have been short for months, in this country a very generous rum punch is $1.50 (from 3pm to 6pm) and this is the amazing view from this island. . .





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.