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September 20, 2014 – Weekend Market Comment

September 20, 2014 – U.S. large cap stocks mostly rose on Friday, with the Dow finishing at a record, as investors welcomed Alibaba's market debut and Scotland's vote to remain in the U.K. Just over 55 percent of Scottish voters supported sticking with the nation's 307-year union with the U.K. after Prime Minister David Cameron vowed to give additional policy-making powers to Scotland.

Friday's session also brought a quarterly scenario known as quadruple witching, with futures and options contracts on indexes as well as individual stocks expiring. Scaling back from an 84-point gain that had it setting another intra-day record, the Dow Jones Industrial Average ended up 13.75 points, or 0.1 percent, at 17,279.74, leaving it 1.7 percent higher on the week, with Microsoft pacing blue-chip gains that extended to 18 of 30 components. After setting an all-time high during the session, the S&P 500 lost nearly a point to 2,010.40, less than a point below its record close, achieved the prior day, and 1.3 percent higher from the week-ago finish. One thing that is concerning is that the higher beta stocks and the prior leaders like technology and financials fell the hardest and the flight to safety plays like utilities and telecommunications led gains among the S&P's 10 major sectors. If you believe in seasonality this will come as no surprise that October historically is the worst month for small caps. 

Overall things look economically stable. The jobless claims report showed the number of people still receiving benefits after an initial week of aid fell 63,000 to 2.43 million in the week ended Sept. 6. That was the lowest level since May 2007. A separate report showed U.S. housing starts and permits fell in August, but upward revisions to the prior month's data suggested the housing market continued to gradually improve. That said, this market is long in the tooth and we just can't see the same super week on week gains that we saw in 2013.

Primary Sell:

Mehh, so far dis is going nowhere, don't you love indecision! Don't Panic Yet, but don't make any big bet either, I look at this graph and I see a room full of traders with an eye on the exit.

Long Term Bull Bear Lines:

Short term bounce complete from here we trudge up at a slower slope or sell off. Move from aggressive high beta to more conservative low beta investments. 

NYSE High Low:

Looks really good, growth has been a bit too strong, so the street is still buying big cap. 

On Balance Volume:

Unfavorable -- Pros might be getting nervous! Don't panic yet. Pay attention to this bad boy, its not always right, but on the other hand this is often the first warning of big trouble coming. Yes you can run screaming like a little girl if this gets much uglier.  Move from aggressive high beta to more conservative low beta investments. 

S&P500 Percent Stocks Above 50 day MA:
Still looks really weak. No rush yet. Move from aggressive high beta to more conservative low beta investments.


The CBOE Volatility Index, a measure of investor uncertainty, rose Friday 0.7 percent to 12.11. yeah that does not look like a rise because you are watching a moving average.... still caution.

Nasdaq Summation Index:

Yeach!, danger! danger! smart money moves to safety. Raise cash.

Aggressive Defensive:

Slow Stochastic is stalling at the bottom. This either means everything is falling apart or we have oversold small caps and we bounce up.... mehh who knows?? Move from aggressive high beta to more conservative low beta investments. 

Green Arrow Graph:

Now here is a nice clear graph, invented by me of course. Slope is falling. Move from aggressive high beta to more conservative low beta investments. This is no time to invest NEW money.

What Works Now

Gentlemen Prefer Bonds
Well does of the US Federal reserve still rule the roost and why are interest rates are still crazy low? 

Let look at a historical graph of 20 year treasury bond rates.

To which I say....

Holy Crap indeed interest rates are below the rate in the 1930 depression. Last I saw there was no dust bowl and soup kitchens. So why are these rates so low? Look at non-farm payroll now ahead of the 2007 boom. 

Well the answer is they should not be, and clearly we are going to need to raise interest rates in the coming months. 

Below is an interesting graph, the red line shows if you would make more money in the stock market or in the Bond market. A rising red line says you would be better off in bonds. It looks like the fed rate is about to fall again over the short term. Or is it? In other words rate very short term could even go lower, but the long term picture is another matter. 

If you think about the big picture, interest rates must rise, they are near zero, how low can they go? 

TBT is a an ETF that you can buy it allows you to make money as bond rates rise. 

I recently put a friend's retirment money (in part) in the TBT exchange traded fund -- and it has done zip for her so she was asking, should I dump this looser? My answer no -- in fact it looks like if you have a really long time horizon this might be the play of the decade. If we go back to a 4% bond rate this ETF could be a "ten bagger" (a stock that makes you ten times your investment)

Continue to stay defensive.  Remember cash is a position too, I am now over 50% in cash. Daily drops of major indexes, of 1 and 2 percent are very possible. Have your "powder ready" if you need to buy the bottom of this dip. If you want to stay long only look at stable big firms that are low risk like, Canadian banks and Pipelines, and in the USA dividend aristocrats. Set your stops very tight! The market is soft, be timid, don't put new money to work, raise cash and invest in conservative equities. Long term trend is up.

You can learn more about my indicators by visiting the CME4PIF school by clicking here.