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October 4, 2014 – Weekend Market Comment

October 4, 2014 – U.S. stocks surged on Friday, with the Dow industrials jumping 200-plus points, after a better-than-projected payrolls report bolstered a positive view of the U.S. economy.

Folks we couldn't ask for a better-looking U.S. jobs report. The market had been getting a bit frazzled; this is the kind of report that eases those concerns. As I have been showing you recently we are seeing an acceleration in jobs growth makes the  Federal Reserve officials very comfortable ending quantitative easing later this month, The government reported the U.S. jobless rate fell to 5.9 percent in September and companies added 248,000 in payrolls after a 180,000 hike the prior month, more than previously estimated. Here is Non-Farm payroll now well past the 2007 peak:



Halting a four-session streak of losses, the Dow Jones Industrial Average jumped as much as 226 points, and finished up 208.64 points, or 1.2 percent, to 17,009.69, with Goldman Sachs Group leading blue-chip gains that extended to 29 of 30 components. The Dow closed 0.6 percent down from the week-ago close. The S&P 500 advanced 21.73 points, or 1.2 percent, to 1,967.90, with health care financials the best performing and all 10 major sectors in positive terrain. The Nasdaq climbed 45.43 points, or 1 percent, to 4,475.62, leaving it with a weekly loss of 0.8 percent. For every share falling, just over two gained on the New York Stock Exchange. Composite volume neared 3.6 billion. On the New York Mercantile Exchange, oil futures for November fell $1.27, or 1.4 percent, to $89.74 a barrel.

Warning, I am blowing my own horn here: You might recall last week I said..."we probably have not competed the retracement, but we may be close. The last three pull backs were all about 4.5% but so far we are only down 3%." and no surprise the S & P 500 sold off to about 4.5% by Wednesday and began to turn up on Thursday.


As always, this all shows up in the charts . . .

Primary Sell:

Pros still not back in the game, but their attention is on the rise!

Long Term Bull Bear Lines:

Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Nibble here trade some cash for some solid investments that you love.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


NYSE High Low:


Some tiny signs of hope but still ugly.
Conservative investors: Wait for a cross over
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


On Balance Volume:

Solid bounce with good OBV follow thorough. Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Nibble here trade some cash for some solid investments that you love.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


S&P500 Percent Stocks Above 50 day MA:

Some tiny signs of hope but still ugly.
Conservative investors: Wait for a stronger signal
Aggressive Buy the Dippers:  Well this could bite you . . . but better now than last week.



VIX:

On Wednesday and Thursday, some of the day's biggest trades have been sales of put options on the S&P 500 and the Nasdaq 100, as well as sales of call options on the VIX. Since the VIX tends to rise as stocks fall and traders become fearful, these institutional-sized trades on the CBOE Volatility Index indicate that major options players think the worst may be over. What we've seen at the end of last week is people starting to unload their insurance, take that protection off, To me, when we get the market down and yet people are taking insurance off, it tells me that the smart players out there are trying to buy into this market—remove the insurance, and play to the upside in stocks.

Short term sell-off should now be complete. From here we should recover, unless this is a relief buy the dip fake out. 
Conservative investors: Wait for the 5 day EMA trend line to break below 13 before you trust this
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.


Nasdaq Summation Index:

WOW! major ugly!
Conservative investors: Stay well away, this could get worse.
Aggressive Buy the Dippers:  Clearly the NASDAQ is not so far participating in this bounce. An optimist (fool?) would see an oversold market begging for reentry point.


Aggressive Defensive:

Some tiny signs of hope but still ugly.
Conservative investors: Wait for a better signal.
Aggressive Buy the Dippers:  Should be the bottoms in, play your no guts no glory strategy.
 


Green Arrow Graph:

No green arrow for you! I would wait on the sidelines just a tad longer. Could be OK to buy really solid equities.

USA Renko Chart:

Classic, looks like the correct point for a bounce in a market that is still in a long term uptrend.

This graph above is based on an ETF called IWM  These are much smaller company stocks than found in the S&P 500 index and notice how much more the range is stuck, No aggressive buying of small caps is either an opportunity or a sign things are not as good as we thought. Keep this in mind the S&P500 is up nicely this year but small caps, the Russell 2000, that's down over 4½ percent, was down 6 percent last month, second month out of three we saw that. Emerging markets are down on the year. Europe's down on the year. So its not all roses out there. . .. I sure hope this breaks out to the top, or this could be the end of the long running bull.


A Special Report -- Fall 2014 and the American Consumer
Investors who want to make tactical shifts in their portfolio can use certain predictable cycles to invest in certain sectors at certain times of the year. In the fall attention turns to the U.S. consumer, as retailers stuff their shelves with clothing, food and toys. Household spending generates more than two-thirds of total economic output, so sturdy spending gains should translate into economic growth. Also if energy prices stay low that bods well for low inflation and more consumer spending, since what we don't spend at the pump tens to go to Wall Mart. Christmas should be especially merry in 2014 as we are getting almost daily good news in the strength of employment and consumer spending. Or to quote the great economics professor Dr Seuss:



They'll blow their flu-flubers, they'll bang their tar-tinkers,
They'll blow their hoo-hoovers, they'll bang their gar-dinkers!
They'll beat their trum-tookers, they'll slam their sloo-slunkers!
They'll beat their blum-blookers, they'll wham their hoo-whunkers!


Consumer spending rose a seasonally adjusted 0.5% in August from a month earlier and personal income rose 0.3%, putting the U.S. economy on track for solid growth in the third quarter, Commerce Department figures showed.Consumer spending rose a seasonally adjusted 0.5% in August from a month earlier and personal income rose 0.3%, putting the U.S. economy on track for solid growth in the third quarter.

Americans' estimated spending on services rose 0.5% in August. Spending on goods rose 0.4%, including a 1.8% jump in purchases of durable goods like automobiles.

A good sign of confidence is Americans have stepped up borrowing in recent months. Outstanding consumer credit, excluding mortgages, rose at a seasonally adjusted annual rate of 9.7% in July, according to Federal Reserve data. Growth accelerated both for revolving credit, such as credit-card debt, and non-revolving credit, including auto and student loans.

So this should show up in the charts. As it is clear that the US economic stimulus is going to be withdrawn you would expect a flight from US bonds.  The red line is a ratio showing if you would make more money in stocks or bonds, Ah too bad for Mr Bond, now on a down turn. 



The funny blue green line is the US consumer discretionary spending line. This generally does very well in the fall. So expect bonds to drop, consumer retailers and consumer goods manufacturing to excel.


What Works Now
Well, short bonds. Of course long consumer stocks and a few solid firms beat down in the sell off. Look at any of these right now if your aggressive or in a bit if you are conservative.

OK so short US treasury bonds with the TBT ETF

Long consumer retailers and manufacturing:
















Summary
It is too early to jump back in but this bounce looks real, expect a strong fourth quarter with very strong consumer demand, but that does not mean this pull back is over. By all means nibble on some solid firms here, but no betting the farm just yet, to be uber-safe, wait for a green arrow!

Happy 100 CME4PIF



This is my 100th Market Comment, oh joy!














You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it. 


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Yet another parabolic up week for the markets. Honestly folks valuations are really stretched here. The air is so thin at this altitude. Then again the markets can and do (on a short term basis) anything they want. Still I would expect a little pull-back in the next two weeks.


Lets see what is in the charts this week:

CLICK HERE: To see the 100 and 200 series charts



101 Bull Bear Bull market (dark green over red) and now the short term (light green) is up sharply. Also note the dark green 50 day average is in a firm uptrend. NOTICE THE SLOPE (second window), this could be part of a new long term uptrend.Bull market -- expect bullish outcomes…