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January 31, 2015 – Weekend Market Comment

January 31, 2015 – U.S. stocks declined on Friday, with benchmarks down for a second month, after data showed U.S. economic growth slowed sharply in the fourth quarter and Russia's central bank unexpectedly cut is benchmark interest rate. The Dow Jones Industrial Average fell 251.90 points, or 1.5 percent, to 17,164.95. The payment processor jumped more than 4 percent after reporting a better-than-expected quarterly profit late Thursday.

The S&P 500 declined 26.26 points, or 1.3 percent, 1,994.99; consumer discretionary leading losses and energy the sole sector in 10 gaining. The Nasdaq shed 48.17 points, or 1 percent, at 4,635.24. For every share rising, two declined on the New York Stock Exchange, where 1.2 billion shares traded. Composite volume neared 4.6 billion.

Friday's disappointing fourth quarter GDP report of only 2.6% caused heavy selling of stocks and buying of bonds. The combination of falling stock prices and heavy volume gave the week's performance a negative look, and suggests that underlying support levels will be tested. The Dow Industrials ending the week at the lowest close since mid-December. The Dow is now threatening its mid-December low and its 200-day moving average. The two heaviest trading days were on Tuesday and Friday, as prices were dropping. Not a good combination. The S&P 500 ending the week well below its 50-day average (in the heaviest trading of the month), and nearing a test of its January/December low and 200-day average. There was heavy selling in the Nasdaq Composite after it met resistance at its 50-day line.

What I Think . . .
Falling oil prices are thought to be good for stocks because they stimulate consumer spending and hold down inflation. The lower costs support economic growth, boost corporate earnings and lessen pressure on the Federal Reserve to raise interest rates. The stock market loves that mix.  However the problem is right now oil companies are restating their upcoming quarterly projections of earnings, they know immediately how much pain $50 a barrel oil will create and they are already warning the wall street analysts. So a major DOW stock like Exxon is in free fall, wiping out all of the gains for 2014 with direct consequences for the DOW index. 

Oil is a very big business if Oil companies were countries, Chevron would be bigger than the Czech Republic and Exxon Mobile would be bigger than Thailand. Meanwhile the consumer will take months to start feeling the effect of lower pump prices and it will take month more before it shows up in the earning numbers at the WalMart and the Gap. But the trading computers are adjusting all stocks down in price -- just because the indexes are squeezed by oil company stocks falling share price. If Exxon Mobile is down 1% then the DOW drops something like .3% and so the computers squeeze all stocks in the S&P 500 .3%. 

The result is we have a net upward bias due to a strengthening economy but the market fails to anticipate it and instead equities trade sideways or what is called consolidation.

If you look at the Long Term Bull Bear Chart you will notice a slope indicator on the bottom of the graph. Think of this like an airplane instrument for rate of climb, or vertical speed. 

The slope indicator measures the rise-over-run of a linear regression, which is the line of best fit for a price series. Fluctuating above and below zero, the Slope indicator best resembles a momentum oscillator without boundaries. It is not well suited for overbought/oversold levels, but can measure the direction and strength of a trend. It can also be used with other indicators do identify potential entry points within an ongoing trend.

I have added some red arrows as points of interest. Notice what happens during pull backs during times of of flat or negative readings on the 50 day slope. Not surprisingly the sell offs are deeper and more pronounced. 

It All Shows Up In The Charts . . . 

Bull Bear Lines
The Bull Bear Lines say this is a bull market but no sign of an upward bounce.

Aggressive Defensive Graph
The Slow Stochastics on the top of the graph are dropping off.

Green Arrow Graph
Our Green arrow graph got us long a few weeks ago, and that was not the best week to be long, this week it looks uninterested in performing, clearly the pros are worried. 

Nasdaq Summation
Mmmm no good news here.

NYSE New High Low
Still showing strength on the big board.

On Balance Volume is keeping pace with the current market showing that institutional large volume buying is still active. This is one of the more interesting graph, even though it is declining if this was a true panic sell off the red line would be lower. 

Primary Sell 
The market pros are buying protection.

S&P500 Over 50 Day
The percentage of stocks over the 50 day moving average is on dropping off but perhaps we pause here. This looked like it was going to bounce last week . . .  not any more.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded over 20 generally on a advancing slope. Notice the bounce in the CCI graph at the top. You can learn more about the VIX index here.

Yeach .... sideways markets are messy. It is still a bull market but clearly no up trend for now. You might want to watch this CNBC video for a better understanding. For a preview of what is coming in Canada check this blog site.

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