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May 27, 2017 – Weekend Market Comment

May 27, 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).


The S&P 500 index SPX, +0.03% gained 0.75 points, or less than 0.1%, to finish at a fresh all-time high of 2014.82, buoyed by gains in consumer-staples, consumer-discretionary and materials stocks, all up about 0.3%, while real estate fell 0.7%, weighing on the broad-market gauge. The Nasdaq Composite Index COMP, +0.08% rose 4.94 points, or 0.1%, to notch a record at 6,210.19. However, the Dow Jones Industrial Average DJIA, -0.01% finished 2.67 points, or less than 0.1%, lower at 21,080.28, a tiny loss but enough to keep blue-chips out of the record-setting party, albeit just 0.2% away from its own all-time high.

Here is what our charts say:





101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a flattening uptrend.  NOTICE THE SLOPE (second window), we might be starting another new slope upward.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are firmly up. 

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
Wow new trend -- strong industrial production.  That is good news.

115 Renko
Sideways consolidation, possible overhead resistance at this level. CAUTION.
!
203 OBV
OBV (red line) is with the market. The big boys are buying!

207 VIX
Fear craters... hmmm wow that is confidence.

209 VIX Evaluator
All good again.


211 S&P500 over 50 day
Now about 60% of stocks are above their 50 day MA,  up from last week when it was 51%.

213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. 


301 NASDAQ Summation
Nasdaq breadth is returning. Pay attention -- could be volatile.

303 Aggressive Defensive
Aggressive but getting tired for now.

305 Consumer Bonds vs Equities
Bonds fail. Consumer big boost. BULLISH!

307 Bond Direction
Bonds still trending up, just not recently.

309 Sectors
NASDAQ leads and banking lags. BULLISH!

311 Nations
Germany stumbles! Canada you still suck.

313 Major sectors
Global Emerging is emerging.

! = Pay attention this chart is important this week.


A Reader Asked
Stops
A reader of this blog pointed out that I often say to raise stops when the market gets unstable -- but just how do you set a stop?

Trading is a game of probability. This means that every trader will be wrong sometimes. When a trade does go wrong, there are only two options: to accept the loss and liquidate your position, or go down with the ship. This is why using stop orders is so important. In this lesson, we'll explore several approaches to determining stop placement that will help you to swallow your pride and keep your portfolio afloat.

Please see my new Lesson 10 in the CM4PIF School, on how to set a stop.


What I Find Interesting
Facing An Ugly New Reality
Is the world suddenly distancing itself from political correctness? You might enjoy the fascinating BBC video below, it shed some light on a lot of global mysteries. If Brexit took you by surprise, if you wonder why an idea as stupid as the Trump wall could be endorsed by so many, if you want to know why Turkey is disillusioned with the EU or if you wondered how a three-year-old ultra right wing Alternative for Germany, or AfD, party captured overnight support?

Trevor Phillips was Prime Minster Tony Blair's man to enforce an end to prejudiced in Britain, a man at the heart of being politically correct. Now he confronts some uncomfortable truths about racial stereotypes, as he asks if his own attempts to improve equality have led to serious unwanted negative consequences, leaving the majority feeling marginalized. Could it be that many people are frustrated that even if they tell a truth, you can not talk race without being branded a racist and a bigot? He fought for equality, but what he got was a backlash that in his own words, is undoing any good he created. It really is a case of man thinking "careful what you wish for".


2016 Paradox Market
When traders are nervous they move to stable investments like utilities. Below is the the Dow Jones Average in blue and Utilities in brown. For 2016 utilities  beat the market.

When traders are confident they move to risky investments like High Yield Bonds. Below is the the Dow Jones Average in blue and High Yield Bonds in pink. For 2016 High Yield Bonds often beat the market.

But for 2017 the clear winner has been more caution.



Happy Birthday Canada - You Suck
In the last few weeks I have been expounding on the April 7th Macleans article that points out all that is left of the Canadian economy is housing speculation, and that is also getting weak.

In Canada more bad new the latest employment numbers from April 2017 hit the lowest jobless rate since October of 2008, as the number of unemployed persons fell by 48.7 thousand while employed rose by 3.2 thousand. However it was far below market consensus of a 10 thousand increase. Hidden in the numbers though is huge drop in the number of Canadians in the  high paying oil, manufacturing and public health sectors. Most of the increase sited was the type called "paper-hat-jobs" those part-time service industry jobs.
 

In Canada full-time job growth died after 2015 with almost all new jobs in Canada now being part-time. 

Although California is one of the deepest in debt and worst run U.S. states it has nothing on Ontario. While Ontario’s population is about one third of California’s, its debt load is more than double that of the biggest U.S. state.

S&P cut Ontario one step on July 6 to A+, the fifth-highest level. The company cited infrastructure spending that will lead to a “very high” 267 per cent debt-to-revenue level in the next two years.

Alberta was the economic powerhouse left in Canada and as I have said is on its knees. This article in the Sun newspaper is over optimistic, as locals in Alberta tell me their rental properties are not renting. This was confirmed in January in the Huntington Post article on dropping rents in Calgary.  Here in BC we see waves of Albertan and Ontario residents migrating here. The Alberta government published figures this spring that shows a net increase in Alberta population, but a more careful read shows it is only new Canadian immigrants, long term locals are actually migrating out. Also these statistics are notoriously, dated, politically bias and probably way short of the reality.  This article in the Calgary Herald shows that resource tax revenue is way down, so squeezing Alberta tax payers is the new norm. One Edmonton resident tells me that municipal property taxes that were about $1,800 in 2008 are now over $4,000 a double in under a decade.The only hope is that oil will rebound in price, but according to Market Watch there is little chance of a rise in the price of oil in 2017 or even 2018. Indeed it looks like even $10 more dollars may be shaved off a a barrel of oil.

And the charts agree that Canada sucks... the Bullish Percent index often shows when the Toronto TSX is going to roll over, the blue lines were prior peeks before the end. Guess what?


By the way, yes that is a notorious double top you see in the red price chart.

July 1 2017 Canada turns 150. It looks like in a month for Canada's 150 birthday the nation is getting a recession.




What Works Now
Cooper Stanley
Cooper-Standard Holdings Inc., through its subsidiary, Cooper-Standard Automotive Inc., designs, manufactures, and sells sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems worldwide. (Ticker: CPS)


China Sate Owned Enterprise Fund
(Ticker:CXSE)



What I Think
I think we are in a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009), and neither show signs of abating. 


The S&P 500 and the Nasdaq hit new record highs yesterday, and the Dow isn't far behind. Large parts of the stock market, however, are lagging behind. That's not necessarily a good thing. The stock market is stronger when most of its stocks are rising along with it. Which brings us to the divergence between growth and value stocks. The 2017 stock rally has been dominated by growth stocks.  The Russell 1000 Growth iShares (IWF) surging to a record high this week, outpacing the SPX by a wide margin this year. Since the start of this year, the IWF has gained 14% versus a 7.8% gain in the S&P 500. Technology is the biggest part of the IWF with a top weighting of 33%. And the tech sector is the market's top 2017 performer with a gain of 17%. Five of the biggest IWF stocks are in technology and account for 21% of the IWF. They include the usual, FANG/NOSH stocks, Facebook, Amazon, Apple, Microsoft, and Google. Not surprisingly, that's mainly what's driving the stock market to new heights. The big question is whether that's enough to keep it going. That's because value stocks are not participating in the current rally.

I think this is one heck of a Bull Market, but as you can see from my Chart 115 the Renko Chart of the Russell 2000, we are pretty much going sideways.

As you can see in November 2015 in the chart above that can be when investors give up.

Also notice how the majority of the stock market, in the case the Russell 2000 (Blue line) is not going any where but the the big stock focused DOW 30 (gold line) stocks are very strong, but even that looks over done.



When you see the small caps not participate with the large caps, you have investors that are really concerned about economic growth inside of the U.S. going forward and those are signals we need to be aware of and … keep some powder dry on the sidelines to take advantage of that.

That said it has been a good run this week.  Breadth and volume all look positive.




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.


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Yet another parabolic up week for the markets. Honestly folks valuations are really stretched here. The air is so thin at this altitude. Then again the markets can and do (on a short term basis) anything they want. Still I would expect a little pull-back in the next two weeks.


Lets see what is in the charts this week:

CLICK HERE: To see the 100 and 200 series charts



101 Bull Bear Bull market (dark green over red) and now the short term (light green) is up sharply. Also note the dark green 50 day average is in a firm uptrend. NOTICE THE SLOPE (second window), this could be part of a new long term uptrend.Bull market -- expect bullish outcomes…

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