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February 28, 2015 – Weekend Market Comment

February 28, 2015 – U.S. stocks posted gains of 5 percent or more in February, despite closing modestly lower on the last trading day of the month on Friday amid lackluster data and oil gains. 

The Dow Jones Industrial Average closed down 82 points, or 0.45 percent, at 18,132.38, with American Express the greatest laggard and Coca-Cola the greatest of seven blue chip advancers. The Dow gained 5.64 percent for the month, its best since January 2013. The S&P 500 closed down 6.24 points, or 0.30 percent, at 2,104.49, with information technology the greatest decliner and consumer staples and telecommunications the only two advancing sectors. The S&P was up 5.49 for the month, the best since October 2011. The Nasdaq closed down 24.3 points, or 0.49 percent, at 4,963.53. The index gained 7.08 percent for the month, its best since January 2012. Advances were a step ahead of decliners on the New York Stock Exchange, with an exchange volume of 738 million and a composite volume of 3.3 billion in the close.

What I Think
Well here we are in the upper atmosphere. There is very little oxygen up here and we are all feeling a tad giddy. Almost every single market index from the DOW to the Russell 1500 hit a 52 week high this week. But if you were listening the real star of the market was... as predicted here... The NASDAQ...Up 7 percent (in February), so this month the Nasdaq was really phenomenal in and of itself.

The technology-heavy index, which tracks the 2,500-plus stocks that are listed on the Nasdaq stock market, has advanced 4.6 percent this year, and is up 16 percent in the last year.

Almost half the companies in the NASDAQ index are technology stocks, and the Nasdaq is outperforming both the Dow Jones industrial average and the Standard & Poor's 500 index this year, as the technology sector is coming back in favor. One stock in particular is giving the Nasdaq a lift: Apple. The technology giant has gained 17 percent this year, pushing its market value over $750 billion. The surge means that the stock now accounts for about 10 percent of the Nasdaq's market value. That compares with its 4 percent share for the S&P 500.

Since companies on the NSADAQ tend to be riskier smaller firms than the giants on the NYSE it is a sign of a risk on environment. Of course when the NASDAQ leads it means we are in a bull market. That said . . . a 7% gain in a month is a heck of a run and we might be over extended. 

Don't forget rookies think of gains, pros think of risk. So paranoid is a good thing. The math of percentages shows that as losses get larger, the return necessary to recover to break-even increases at a much faster rate. A loss of 10 percent necessitates an 11 percent gain to recover. Increase that loss to 25 percent and it takes a 33 percent gain to get back to break-even. A 50 percent loss requires a 100 percent gain to recover and an 80 percent loss necessitates 500 percent in gains to get back to where the investment value started. Be a pro stay safe!

It All Shows Up In The Charts . . . 

Bull Bear Lines

Nice bounce and the bull continues, I do see the little peak here and yup it looks like the start of a small correction. 

Primary Sell 
Clearly the market pros were embracing this rally, but ah is that a bit of hesitation?

Aggressive Defensive Graph
The Slow Stochastics on the top of the graph has hit a new peak and heading over the hump.. now red over black, Clearly aggressive equities are already over done and a slow move towards safety has begun.

Bond vs Equities
Ah the dance of the markets... bonds hit bottom of normal range and bounce as smart money takes some profits in stocks and looks for safer harbours. Risk off has begun.

S&P500 Over 50 Day
The percentage of stocks over the 50 day moving average is peaking as bargains are getting rare and only weak stocks are left in the "day old bin". As you can see we are probably about ready for topping out. 

Green Arrow Graph
Our Green arrow graph is stalling... not a good time to put new money to work. 

Nasdaq Summation
The Nasdaq Summation index shows that is is good time to be in high tech Nasdaq stocks. Full on bull run. Even if the market does pull back here this long term risk on behavior is encouraging. Notice we are reaching a prior top point. If the market pulls back but this graph stays green over red it will be time for bargain hunting. 

NYSE New High Low
Still showing strength on the big board. This is still a long term bull market.

Great to see safety stocks particularly utilities decline and the new leader is consumer discretionary and the high tech stocks of the Nasdaq. However it also is clear that this is about the max of the normal range... anything COULD happen, but it probably is time for the higher risk stocks to get tired. 
XLF - Financial Stocks - Dark Blue
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown

On Balance Volume is not keeping pace with the current market at all. This is showing that institutional large volume buying is going to the sidelines. It looks like the "smart money" was late to the party this time and is not hanging around. I have great respect for the early warning signals that come from OBV , yes it is not perfect, but it often warns very early. So it is this chart that has me the most concerned this week. 

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 14.

VIX Evaluator
Don't forget this is an experimental VIX indicator... this week it looks like it is saying... my look how close I am to the edge of my range.....

OK well it is like this.... We are in a bull market and this last bounce is a real good one. A lot of money for the first time, in a long time, is very "RISK ON" with Apple creating a happy mood all around. In classic technical analysis there are signs of continuation everywhere and some of the best traders I know think things look great. But... there are these recent little bounces in both Gold and Bonds that tell me not everyone is loving risk. 

Also the OBV chart is deeply concerning. Plus the sector chart looks ready to change major players, like a drop in NASDAQ and raise in Utilities. 

Some of the other indicators like Primary Sell can behave this way weeks before trouble happens. So I might be paranoid but I am "gently pulling my horns in" I am slowly getting long safety.  In short we still might have a bit to run but I would not take big risks here, raise your stops, take some profits, sell your high beta and move in to stable plays like TLT (bonds) and DVY (big cap stable). If things begin to slide look at buying some protection with the VXX fund a bet on a higher level in the VIX. 

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