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July 26, 2014 – Weekend Market Comment

July 26, 2014 – The Dow closed below 17,000 in its biggest weekly decline in 7 weeks after Visa fell more than 4 percent on its lowered full-year revenue forecast. U.S. stocks finished lower on Friday weighed by Amazon's weak earnings and Visa's disappointing outlook, in addition to ongoing worries over geopolitical unrest. In the final hour of trading, markets briefly ticked lower after Goldman Sachs released a note saying they are "neutral" on equities over three months as it sees a slide in bonds leading to a temporary sell-off in stocks.

OK so lets see how bad the damage is, first off, as I have said for a while, we are in a very strong bull market. That has been true for a long time, and lets face it, the bull has run more than five years and no bull market goes ten years with out a correction, so the best days for making money were the prior five, and risk will be higher in the next few years.

If you look at the long-term bull and bear lines we are still seeing strength and so we must hope the end is not now. Click here to learn about the bull bear lines..

One of my friends was asking about the pull back in Tripadvisor this week. He wanted me to pick a price that would be a good point to get in after it drops. Well that is a bit like catching falling knives.

So all together.... we don't catch falling knives

You guys know how this works, when the charts tell you to get  in, you do, but not until then. I am no clairvoyant . . . it could go to zero (I don't think so but who knows).  So all I can say is "we are not there yet" (see doggy graphic above). Looks like Mr. Market is putting another fine company on sale for us to buy at a a bargain price.  OK Now lets see that TripAdvisor chart . . . mmm really ugly. 

He also asked why TripAdvisor sold off. Reason? well, there was this news . . .

TripAdvisor got tripped up by big marketing costs, posting Q2 EPS late Wednesday that fell far short of Wall Street expectations, sending the stock falling.The company's revenue beat expectations, but TripAdvisor (NASDAQ:TRIP) stock was down 11.5% in after-hours trading on the earnings miss.

Lets think about that, sales up and profits down. Now in a car company that is a scary thing, it means that they are not efficient or the market is too competitive. Tripadvisor is not a car company, it is a web site. Its biggest cost is wages but it could if necessary run with about 5 staff, but when it increases costs it is adding value either by acquiring new features (click example) or by doing more R & D. The point is it can turn up the profit anytime it wants by downsizing staff. What really matter is sales are increasing.  Also it just could be growing too fast to bring a lot of profit to the bottom line now, that could come later. People are mad at Apple who hoards cash and is not using it to grow the firm and now they are doing the opposite whining with TripAdvisor.... you can't win.  So this silly sell off is probably just the pros scarring off the amateurs. But don't speculate... the charts will rebound if this sell-off is just a knee jerk reaction.

But that is not the whole story, Tripadvisor is a high beta stock, that means it goes both UP and DOWN in big leaps.  In high fling tech stocks, the usual rules of fear and greed are on steroids Now if you were listening last week I said THIS IS NO TIME TO PUT NEW MONEY TO WORK. So if the market is weak the volatile stocks will be...  volatile (big surprise!).

Last week we looked at the Primary Sell indicator and here is this weeks version. NEWSFLASH: this is not a positive looking graph, folks. (how to use this graph click here)

We also looked at the percentage of stocks over the 50 day moving average. (Learn to use this graph here). OK now folks this does not look happy does it . . .

What I find troubling is that small cap stocks are way behind big cap and that is never good for the market and can even foreshadow a correction. Here I am charting the Mid cap 400 verse the S&P 500 large cap stocks. If the graph goes up then smaller stocks are selling well, if the graph is down it signals an interest in safety. The lower graph shows the S&P500 prices. Notice the top graph predicts the bottom graph price.

The industrial stocks haven't looked too industrious this year. With a mere 1 percent rise in 2014, the sector is lagging the S&P 500 by more than 5 percentage points. This is important because this is the heart of the power of the US economy. So, we're not exactly in a uniformly strong market. The Russell 2000, which represents 2,000 companies, is down 2 percent for the year. And big deal, the S&P is up 6 percent, whereas the Philippines, Indonesia, India, Thailand, Vietnam are all up between 15 percent and 25 percent.

What Works Now
What is doing well lately is China and emerging markets. Here is China's answer to Google, BIDU.

Brazil is strong -- so you are glad you followed me in to Companhia Energetica de Minas Gerais-Cemig ADS  symbol CIG 

Even the broad Canadian Markets are doing well, this chart is the ration of the TSE 60 vs the S&P500 a raising graph shows you are better off invested in Canadian markets. 

So yeah like buy Canadian eh?