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Aug 10 2013 - Weekend Market Comment

Aug 10 2013 - Be very very quiet say the traders and the hedge funds, we have only a few days to sneak away. OK maybe it is not a conspiracy but the markets are soft right now and the big money (just like us) is getting defensive.

But first I would like to gloat, you recall last week I said the VIX was way too low and sure enough this week the VIX is up on a soft pull back.

Since the market has rallied strongly from its 2012 lows and earnings have shown strength, now is a good time to trim back some positions. However, there is nothing fundamental that would necessitate a sell-off, simply taking advantage of short-term market highs.

I do expect that at any time, the market could easily be prone to a 4-6 percent pullback here. A lot of that is people looking to lock in profits. The overall look ahead is that things are getting better. The market is telling us 'pause to ponder' here, but the direction remains higher, if modestly so, by the end of the year. But this is just a pause in the context of a market that has done extremely well.

This is a good time to play conservative plays like broad ETFs, dividend plays like pipelines and to raise cash. Of course I have some graphs to back up my point. Don't forget a good pull back in the fall is common.

Retail Slump
Until now retailers like Macy's and Wal-Mart had been the bright spot in the US economy. Analysts at Retail Metrics recently identified some softness across the retail sector, raising a cautionary flag as companies head into the back-to-school selling season.

“Higher year-on-year gas prices, the payroll tax increase, summer doldrums, lack of wage gains, and competition from housing, autos and durable goods kept a lid on consumer spending in traditional retailers this month,” they said.

On the U.S. economic indicator calendar next week: two major inflation indices, jobless claims data and the housing starts report.

What the Charts Say
First off the financials are selling off.  This week the the XLF broke the 21 day moving average.

Here is our "Green Arrow" Graph and the weakness continues.

The NYSE %-over-50-day graph is looking week look at the MACD on top, momentum is dying. When it hits zero the pull back begins.

Although far from the perfect indicator the NASDAQ Summation Index is rolling over even though the NASDAQ itself is at record highs. This always a good time to "pull in your horns"

Ah but there is some good news in commodities -- copper has been gaining some ground. Long ago copper was a great indicator of economic strength since wiring is so important to the building trades. At least it is not selling off as bad. For now I will call this a "what the heck rally" In other words some funds bought a bit because $3.00 is very cheap for copper, also the latest manufacturing numbers out of China are not a sever as could be. Its gona take more than this to get me back in the commodity pits. These kind of moves can be very fickle.

What Works Now
I hope you all followed me into Electronics for Imaging mentioned back on June 29th. I would tighten your trailing stops to 5% for a guaranteed profit on this long run winner.

Springtime for Germany. The EWG German ETF continues to uber perform and delight my account. Expect this to do well until late September when Oktoberfest begins and the market turns to bratwest.

I had a reader ask me about the Gold situation.  Well as you can see gold bounced in early July off what the market thinks is the $1,200 cost of production. $1,200 is only the NEW cost of production. Shut down the new mines and stop paying overtime and suddenly the real cost of gold production drops to $400 an ounce. But what I find interesting is the lower part to this chart. Gold is priced in US Dollars. When the green line representing the US dollar is going down the black line of gold should be sharply up, but it is not. In other words there is panic at HSBC and they continue to dump a 1,000 tons of gold back in to the markets to feed the ducks. If money flows back to the US market expect the dollar to rally and gold sell off hard.

Now look at this, of course the market can go anyplace but I am going to be betting soon we have hit our heads on resistance and continue the march down. See the red line.

Well I am off to watch the sunset on my ocean view deck . . .