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November 9, 2014 – Weekend Market Comment

November 9, 2014 – Stocks launch into November at record highs, as if October was just a bad dream. But that does not mean the volatility that punctuated October's roller-coaster trading will end, as markets focus on the activities of global central banks and weigh the health of the world economy. In the U.S., this Friday's October jobs report could be a major market event, especially since the Fed ended its bond buying program in the past week and has said its future path on interest rates will be dependent on the economy. The Bank of Japan Friday juiced global stock markets by announcing the expansion of its already massive monetary stimulus program, and separately, the Japanese government's pension fund expanded its purchases of foreign and domestic stocks. The Dow and S&P 500 jumped more than a percent, adding to the week's gains. The Nikkei Friday jumped nearly five percent, and the yen plummeted to a near 7-year low against the dollar.

Of course I could show you some happy graphs as Americans jump on an equity buying spree based on the right-wing idea of everything will be alright as long as the Republicans rule. Stocks rose on Wednesday a day after Republicans gained control of the Senate in midterm elections, pushing the buoyant Dow Jones industrial average deeper into record terrain.

Historically, stocks tend to do well in the months surrounding the second midterm of a two-term president. Moreover, the holiday season is the best three-month stretch for the market during the year. But this is no ordinary market, and this has been no ordinary election.

So far, the chatter is that the parties could dig in on issues like immigration reform, which could lead Republican hardliners into unpopular strategies like shutting the government down, or even pursuing impeachment charges. Republicans would also likely see President Obama veto even small changes to the Affordable Care Act.

So we are on a happy buying spree as money moves from the side lines, but in the famous buy the rumor sell the news, type of Wall Street logic, is this an over bought market allready? Lets face it once all that money comes in from the sidelines who is left to buy?

Well I present exhibit 1 the S&P500 percent of stocks over 50 day. What this shows you is home many of the biggest 500 stocks are doing well. The idea is that in a group of stocks that big, some must be not doing well, for every facebook the world has a Kodak. As the graph rises, you can gauge euphoria as even crappy stocks get investor money and the computers look for ¨value¨. Well fols if you want to see euphoria look at this chart:

Hokey fritz! You can not tell me only 9% of the firms in the S&P500 are lagging. As you can see the party can not last, yes I know there is no down turn yet but this is not sustainable.

You might have a look at this from CNBC and this one from Market Watch to show you how this market is shaping up.

Now lets move on to three more harbingers of impending doom, the aggrssive defensive graph says time to pull in your horns when the red and black line at the top of the grpah is near the top of its range.

Also we for the first time in a while seeing the perking up of interest in gold, especialy on Frday.

Finaly the interest in bonds v equities has started to look like it might now go the other way.

 The Green Arrow graph has shown a slowing in momentum

Well that abve does not look good, but you just can´t run away when markets are this hot, but it would be a great time to move from aggressive to defensive investments. A little cash or TLT or even some low beta stocks like pipleines can be very prudent when all the world is buying.

Here is the good news you cant ignore either all these grpahs show things a good and perhaps after a tiny pull back many go on for a while now.

First the Primary Sell and the VIX show the people in the know are taking off protection.

VIX options traded nearly twice the 1 month average.  The Oct 25 calls and the Oct 15 puts were the most active lines.  Implied volatility of VIX options hit a 2 year high on Friday

Overall we are still in a bull Market says the long term Bull Bear:

On Balance Volume shows that the Major funds are still buying:

Also trending happness on the NYSE and the Nasdaq:

Stay Long, get a little smaller, consider a bit of out favour alternatives like bonds and commodities.

This week coming to you from Las Palmas in the Gran Canaria of Spain.

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.