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August 16, 2014 – Weekend Market Comment

August 16, 2014 – U.S. stocks ended the week mixed in below-average trade volume after news of fresh conflict between Russia and Ukraine.

Early Friday, the major indices plunged, losing morning gains with only the Nasdaq climbing back into positive territory in the close for its best week since May. The Dow also recorded its best weekly gain in five weeks, despite closing lower for the day. With a flat close, the S&P 500 had its best weekly gain since July 3. The big stocks are on edge, early Friday the Dow Jones Industrial Average lost most of its gains for the year as it dropped more than 130 points following the news, with Boeing among the hardest hit and Coca-Cola retaining the lead for blue-chip advancers. The swings of the market on both sides are over-exaggerated due to low volume. We're just seeing a market that's worried about it but yet not falling apart at the same time.

Well last week you read that my leading indicators looked like the were turning around and that continued this week. The Good News is we have a brand new shine Green arrow on my famous green arrow graph. Looks like it time to jump in the market!

We are also seeing fear disappear from the professionals here are the VIX and the Primary Sell Indicator. These give us a view of what the pros are up to. 

the Primary Sell chart says well its early but it is looking like the trend has begun . . . 

Other indicators show that things are doing better on the high tech and high beta stock world. Here we look at two ETFs one very volatile and one super stable. For high beta I use the juiced mid-cap 400 ETF symbol MVV this we compare with the steady dividend players in the DVY fund. This graph says, risk is back on!

Even though the NASDAQ and the smaller cap stocks are way ahead of the big NYSE stocks, there is good news on the big board too, as the high low market forces tick up. 

We can even pull back and look at the big picture -- yes overall the market looks like it is turning where we would expect it and yes we are still in a bull market. Here is the Long Term Bull Bear graph. The light green line is the 4 day moving average and it is bouncing nicely along with the slope line at the bottom of the graph. 

A Cautionary Tail 
OK so all the indicators I use are looking positive, but the markets are never 100% certainty, there is always a contrary view and every so often they are right in spades. So here I will tell you what is my current nagging concern. This is a summer market, that means volumes are low and reverse swings are very possible. Also if Mr. Putin rolls tanks into the Ukraine well all bets are off. Fundamentals always trump technical. I learned Technical Analysis from reading the works of the master, John Murphy. Mr. Murphy says that there are some very dark signs on the horizon. 

First there is this graph. The red line goes up when bonds out perform stocks. The problem is that in history the bond guys are generally smarter than the stock guys and when money flows into bonds it is generally smart money. The green line is the U.S. consumer stocks and they are heart of the U.S, economy, again kinda not too strong. 

Mr. Murrphy's other concern is how badly the Germany market has performed this week.

OK well Mr Murphy is the worlds foremost technical analyst and me well I am a putz, still I am disagreeing, and dear reader, I am betting real money here so I have a good reason to be careful. I think Europe is far more worried about Putin than we in the west are, I also think that consumer stocks are over run and seldom do well in the summer, they generally run up in the fall in anticipation of the coming Christmas buying season. The consumer is on holidays, no big deal.  On the subject of the consumer I also feel some teeny oriented stocks are really in the stratosphere, like American Eagle, Gap, Aeropostal etc. 

What Works Now
Ok so we are probably on another bull run cycle, what is good to buy?

Well a good steady choice is Iron Mountain, it went on sale this year when the company accountants pulled a fast one on the IRS and got caught, but fundamentally this firm is in a great business. They shred and store paper for big bureaucracies like government and banks.  I advised readers to keep an eye on it as it recovered, and recovered it has. 

Another couple of great business are disruptive of how things are done in the travel business ... Expedia and Tripadvisor

I bought an opening position again in TripAdvisor this week. 

China's version of Google is called BIDU and it has been on a nice run .. recommended many times before here in this blog. 

Canadian medical company CRH Medical corp. focused on providing physicians with expensive and lucrative products for the treatment of gastrointestinal diseases. I have a great gut feel about this one!!! (ha ha)

Gilead is turning around with the rest of Biotech, I purchased this two weeks ago. This company pioneers new versions of drugs that were multiple tablet regimes and turns them into "once a day" . Simple science but big profits.

Also wana up your risk? Play a favorite of mine that has yet to turn around, down some 6% so far this year,  have a look at Kythera Biopharm. This company hopes to make our skin look better and make us thin even if we eat like sows at a trough. America loves to live better chemically. 

A Mile Stone
Thursday the markets ended the day just modestly higher but at their highs of the day, but it was a record-setting day of another kind because one stock has gone where no other stock has ever been before. It is a company you know run by an investor whose become a household name. It is Berkshire Hathaway (NYSE:BRK.A). And one share of Mr. Buffett`s class A stock became the first ever to cross the $200,000 barrier today and it closed at an eye- popping $202,850, up 3,241 today alone. Monster Beverages rose about 30 percent on Friday morning, boosted by Thursday's news of Coca-Cola taking a 16.7 percent stake in the firm.

Coming to You From Salt Spring Island
Today's post was written from the back deck of the Sailing yacht Valborg harbored today in beautiful Salt Spring Island and also from the Salt Spring Island hotel where we enjoyed brunch.