Friday, 26 May 2017

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 huge DOW 30 (gold line) stocks are very strong, but even that is recently fading.

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.


Read My Disclaimer Here

Saturday, 20 May 2017

May 20, 2017 – Weekend Market Comment

May 20, 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 finished higher Friday for a second straight session of gains, but closed in negative territory for the week, unable to fully bounce back from sharp losses in the middle of the week sparked by White House drama.

The S&P 500 index SPX, +0.68% closed up 16.01 points, or 0.7%, at 2,381.73, with all of its 11 main sectors trading higher. The industrials and energy sectors led the gains both rising more than 1%.




Markets were rattled earlier this week, with investors succumbing to a drumbeat of negative news stories focused on President Donald Trump and his inner circle’s relationship with Russia. President Donald Trump declared himself the victim of the “greatest witch hunt” in US political history as it emerged his campaign advisers had 18 contacts in seven months with Russian officials before the election.



Here is what the charts say this week:





101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a rising uptrend.  NOTICE THE SLOPE (second window), we might be ending our new slope upward.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are up but recent red zone increase chances of this is the end of the bull market.

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
New upswing stronger industrial production.  That is good news.

115 Renko
Sideways?

203 OBV
Market flat to down but OBV is along. 

207 VIX
Big scare but abating now?.
!
209 VIX Evaluator
Still not good.


211 S&P500 over 50 day
Now about 51% of stocks are above their 50 day MA, down from last week when it was 55%.

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 dying, but NASDAQ has been all the action, now a breather? Pay attention -- could be volatile.
!
303 Aggressive Defensive
Defensive - Caution

305 Consumer Bonds vs Equities
Bonds up. Consumer flat.

307 Bond Direction
Bonds still trending up.

309 Sectors
Defensives upturn, tech leads, banking lag. BULLISH!

311 Nations
Emerging Markets lead! Canada sucks.

313 Major sectors
Commodities fall, especially Iron Ore, global slow down on the horizon?

! = Pay attention this chart is important this week.



What I Find Interesting


The VIX Before the Storm
This week (the so called fear index) the CBOE Volatility Index decreased 7.6 percent to 9.77, the lowest since 1993. Volatility in the U.S. equity market has dissipated as stock investors whistled past geopolitical unknowns from populist politics to heightened threats from North Korea. While trade agreements, tax reform and the future of financial regulation may hang in the balance, investors have instead focused on one of the best global earnings seasons in a decade and signs of economic growth.

Calm has blanketed other markets as well. Volatility in U.S. Treasuries is down 24 percent since last month and fell to the lowest since October, according to a Merrill Lynch index that gauges volatility from options prices. In the currency market, a JPMorgan Chase & Co. index of volatility in G-7 currencies is at its lowest in more than two years.

In this weeks May 20th edition of the Economist they point out that the two prior times the VIX was below 10 (it did that 1995 and 2007) the next year there was a recession. In the graph below is the VIX, the high spikes (over 30) are market sell offs, always preceded by ultra low levels (sometimes even below 10):

Perhaps more disturbing is who said it. The Economist is a publication that seldom talks about the U.S. equity markets in anything but very broad stokes. If this volatility anomaly has got their attention, it might be a good time to consider if the party is almost over.





Canada Tanks
As Bloomberg pointed out this week, and I warned was coming back in 2012, the Canadian dollar is among the world’s worst performing currencies this year, beaten down by plunging oil prices and the risk of a trade war with the U.S. under President Donald Trump. Enter Home Capital: analysts including those at BlackRock Inc. and Edward Jones & Co. warn that contagion from Home Capital could spill out into the wider economy, further hurting the loonie.

According to Global News the Canadian dollar is headed to 65 cents U.S. in exchange



But will this go beyond and begin a super recession? Many experts see like positive in the economy in Canada in 2017. In March this year the Huffington Post pointed to a new report from one of the world’s top banking authorities is warning that Canada and China are the two countries which face the highest risk of a financial crisis, thanks to elevated debt levels. “Early warning indicators for financial crises continue to signal vulnerabilities in several jurisdictions,” stated the report from the Bank for International Settlements (BIS).




Home Capital has been in the news as it heads for bankruptcy, but Craig Fehr on BNN points out the whole industry is in danger. The risk from Home Capital doesn’t stem from its size or linkages -- it holds only about 1 percent of Canadian mortgages and these are on its own books, which limits spillovers. However a disorderly fallout from Home Capital would damage a sector which is driving Canadian growth. Real estate, residential construction and finance sectors were responsible for around two-fifths of output in Canada’s fastest growing provinces.



As can be seen except for one year after the financial crisis commodities have been falling in price, and the Canadian economy is tied to commodities, here is the CRB index of commodity prices:


With the Oil industry in free fall, all that Canada has left is the housing bubble, pushed up by dirty money being laundered by Canadian law firms in to number companies buying; vacant condos, luxury homes and other real estate. However as I pointed out last December, the flow of Capital from China is slowing.

In fact, home construction is ALL that holds up the Canadian economy now:

The markets benefiting from this are in Toronto and Vancouver. Just look at the skyline of Toronto or Vancouver . . .

Toronto 1984: Office towers and vacant industrial land:

Toronto 2017: condos condos, condos:

Vancouver 1984: Office towers and vacant industrial land:

Vancouver 2017: condos, condos, condos:



Look at this chart of new homes for sale listings in Toronto ... this looks like the panic of the financial crisis.

According to the Financial Post Vancouver sales are down a record 40% and now prices are falling, so far over 8%.


What Works Now
Gold

Gold (Ticker:GLD)


 

AutoDesk
AutoDesk (Ticker:ADESK)


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 - YET.

Despite the better markets on Thursday and Friday, this pull back is a time to be unleveraged and in safer investments. Raise cash, raise stops and if you are brave, buy the dip. Be very very careful, a big pull back could resume this week.




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.


Read My Disclaimer Here