Saturday, 8 April 2017

April 08, 2017 – Weekend Market Comment

April 8, 2017 – 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 advanced Friday after an early session of switching between small gains and losses, as investors weighed a weaker-than-expected March employment data and President Donald Trump’s late Thursday airstrike against Syria. The Labor Department report showed that the U.S. created just 98,000 new jobs in March, marking the smallest gain in almost a year, as hiring cooled. Many economists had predicted a 185,000 increase in nonfarm jobs.


Here is what our charts say:






101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a firm uptrend.  NOTICE THE SLOPE (second window), we might be starting another long ride down.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are firmly up. Also notice the second window three red patches recently. We had many patches like this after mid 2007. This is the sign the market is running out of steam. 

105 Non Farm Payroll
Lots of jobs! But beware this is lagging indicator. The smart money is gone before this turns down.

107 Industrial Production
Flat but strong industrial production.  That is good news.

115 Renko
12 up but the latest is 1 down... caution.
!
203 OBV
OBV (red line) is below the market.  If this gets any worse worry.

207 VIX
Fear is on the way up, but could stall here.

209 VIX Evaluator
Don't panic yet but that is an up tick ... hmmm.


211 S&P500 over 50 day
Now about 57% of stocks are above their 50 day MA,  down a bit from last week when it was 61%.
!
213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. CAUTION

!
301 NASDAQ Summation
Nasdaq breadth is returning. Pay attention -- could be volatile.
!
303 Aggressive Defensive
Defensive, may not hold.

305 Consumer Bonds vs Equities
Bonds flat. Consumer up tick. BULLISH

307 Bond Direction
Bonds sideways moving average. 

309 Sectors
Everything is doing well but banking. Bazaar.

311 Nations
Germany and Philippians doing well bods well for western markets.

313 Major sectors
Not much to say



! = Pay attention this chart is important this week.


What I Find Interesting

Are We Due for Recession?
Of course the big problem we are trying to solve in my Market Comment is are we due for a recession? This bull market has run for 94 months since the last recession ended (as I write this in April 2017). Does the length of this tell us that we are about due for another one? In economist’s lingo, a business cycle is an expansion, when the Gross Domestic Product (GDP) and other measures are increasing, a recession is when GDP falls off.


According to Forbes Magazine:


  • The lengths of recessions vary from 6 to 18 months
  • The lengths of expansions vary from 12 to 120 months
But 120 months of bull market is a record and far from typical. In fact most bull markets last about 55 months.  The chart below is the broad market the grey bars are recessions, as you can see this bull market is getting old. 





Since the market always moves in waves, not every decline is a reason to exit the market. However, when a series of signals align, it can provide evidence that the market is creating a top and could be entering a larger correction. 


The NYSE advance/decline line (green and yellow on the top of chart 103) and the number of stocks making 52-week highs (black red on the second window of chart 103) can provide early warning that the number of stocks participating in the market advance is declining. If these indicators fail to reach new highs (or move lower) along with the market, this may be a sign of weakness in the market. Right now they look just fine, the recent red is a small concern but don't run away yet. 


But the truth is no one knows with certainty. All you can do is say, so far, so good, then watch the 100 series charts for signs of trouble. My ultimate line in the sand is to Bull Bear Lines, and they say this is still a bull market. Just remember the market often is weak after mid April, and we are in very thin air up here. I am not saying to panic, far from it. Many fools have played the game of predicting market tops, see my post A Warning About Experts, but I can say this. As bull markets go…. this one is very old but for now it still looks like it wants to continue.  

A Very Odd Market

The market is consolidating sideways. But some strange things are going on. First lets look at my favourite example of American manufacturing the Ford Motor Company (Ticker: F). Despite positive results and good demand the stock is wandering lower. This is a longer term view than the next charts:



If the market is in a dangerous place we would expect to see defensive stocks like soap makers and food companies to do well, but they are not. See the defensive ETF (Ticker: DEF) 





OK well if the market is excited and bullish we would expect mid caps to out perform. Lets see the Midcap 400 ETF (Ticker:MDY)




So what is driving the market up? Hedge funds buying the biggest growth stocks, here is the Top5 institutional stocks:




In other words too much money chasing FANG (Facebook Amazon Nike and Google). We have seen this before every pull back, Greedy hedge funds are the next to the last stupid money in. 



What Works Now
Qorvo

Qorvo is an American semiconductor company that designs, manufactures, and supplies radio-frequency systems and solutions for applications that drive wireless and broadband communications, as well as chip foundry services (Ticker: QRVO).




What I Think

I think we are in a cyclical bull market (since February 2016) within a secular bull market (since early-2009), and neither show signs of abating. I expect the market to continue correcting the excesses from the advance off the October lows, but I wouldn't bet against the bull. 

As I said last week; Many indicators, especially breadth look a bit better, but this is not the roaring market of last year. Chart 213 the Green Arrow Chart has a TRIX that has rolled over. In other words the greater trend maybe lower or at least sideways.  We also had the red splashes recently on the chart 103 and that is always concerning.


On Balance Volume continues to fade and it is getting concerning:

 
In three weeks we come up to the Sell In May and Go Away pull back, perhaps it is just starting a bit early. 


So yes it is a bull market... but this is a very tired bull. Don't panic, but proceed with caution. This is a fully valued market and it only has select opportunities.







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


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