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March 14, 2015 – Weekend Market Comment

March 14, 2015 – U.S. stocks closed lower on Friday, as a week of mixed economic data, renewed dollar strength and sharply lower oil prices made traders cautious ahead of next week's Fed meeting.

As predicted here, again the Dow fell this week. Friday it dropped more than 250 points before recovering to close 145 points lower. The major indices declined, with nearly all blue chips lower and all S&P 500 sectors in the red. The Dow and S&P 500 posted their third week of declines, while the Nasdaq closed lower for the second straight week.

The Dow Jones Industrial Average closed down 145.91 points, or 0.82 percent, at 17,749.31 with IBM the greatest laggard and Microsoft leading seven blue chip advancers. The S&P 500 closed down 12.55 points, or 0.61 percent, at 2,053.40, with utilities leading all ten sectors lower. The Nasdaq closed down 21.53 points, or 0.44 percent, at 4,871.76. The U.S. 10-year Treasury yield traded higher near 2.12 percent. About two shares declined for every advancer on the New York Stock Exchange, with an exchange volume of 806 million and a composite volume of 3.4 billion in the close.

What I Think
I think the fear is the Fed is going to raise rates... to preserve their reputation. We're looking at a choppy market. Many traders are not going to put in many trades before next week's major events, That's part of the reason why we're seeing a very strong dollar, weakness in oil and metals. That dollar strength this week was straight up, in what is called a "parabolic rise", of course these are conditions often found at the top of panic buying, and often indicated a top and shift in sentiment coming soon. You can see it clearly on this chart of the US dollar.

Well if you have tried to convert any kind of money to U.S. funds you know the U.S. dollar is soaring .... particularly against the Canadian dollar.  OK folks, part of why I write this blog is to put my predictions down with firm dates. So many people tell me when talking about current reality that "they saw that coming" but I put it here to see. In my blog people are free to look back and see if I was right. On June 28, 2012 -- I told you to sell your Canadian dollars and buy US funds. My prediction was met with many sneers about the end of America and a new world with not enough commodities to supply growing demand from China. There were also a few that felt I was wrong about Canada, I was told Canada was more stable because through over taxing the people the federal debt was shrinking (what a load of poop that comment was). Against that I set out 5 very good reasons the Canadian boom was unsustainable. Here is blog post:

Now people are either asking me how I knew that or they say they saw it too. Funny I don't recall many people that agreed with me back then. Nor can I think of anyone who actually listened and sold their Canadian dollars.  I gave a second warning July 2, 2013

Ok well that was a good run for my ego, now back to the present market. As I said last week readers are already hovering their fingers over the buy button. Please cut that out. the markets are very near a point they SHOULD turn around. But there is never a reason the markets MUST do anything.

The market can stay irrational longer than you can stay solvent.”
- John Maynard Keynes

What we are looking for now is a nice sold bounce, and more than a one day bounce, my moto:
One day is NOT a trend.”

So wait until you get a strong sign, like a green arrow on my green arrow chart and folks that is a ways away yet.

It All Shows Up In The Charts . . . 

Bull Bear Lines
The predicted pull back is right on time. Last week I said this will probably will run out of steam just beyond the 50 day EMA( dark green line) and we are there now . . . so could be soon. 

Primary Sell 
Clearly the market pros are running to buy some more insurance this week. The important take away is there is still room to run to the down side as we have just passed the zero line. 

The primary sell chart is a tool specifically designed to help gauge the overall sentiment (mood) of the market. The chart is calculated by dividing the number of traded put options by the number of traded call options. As this ratio increases, it can be interpreted to mean that investors are putting their money into put options rather than call options. An increase in traded put options signals that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off. An falling chart is a clear indication that investors are starting to move toward instruments that gain when prices decline rather than when they rise. These "put" options are what the pros buy to protect their long term positions, so I call that a type of insurance. 

Aggressive Defensive Graph
I wanted to highlight this chart because of the odd behavior. This is an example of why you can not just blindly foloow one chart.  The Slow Stochastics on the top of the graph has tuned a corner, but oddly the broad market has not, now Black over red. What is happening is that the broad market like the S&P500 is weak, especially the big DOW component stocks and high dividend stocks, like DVY, because they sell more products internationally -- but this chart uses MVV to represent smaller cap stocks and they are starting to pickup because of their strong US domestic weighted exposure. So I would normally find in a weak market big firms out perform small, but not this time. 

Bond vs Equities
Also behaving a tad irrationally. The bonds are picking up as the flight to safety continues BUT the consumer discretionary stocks are still rising. Risk off has begun but no flight to bonds.

S&P500 Over 50 Day
The percentage of stocks over the 50 day moving average has peaked weeks ago now, as predicted and the slide down begins.

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

Nasdaq Summation
Also very interesting, by crossing over this could be the beginning of a long slide. The Nasdaq Summation index is also now caught up in the sell off... Risk Off! So take a good hard look at where this chart COULD go, and you can see why I am in no rush to go long. 

NYSE New High Low
No longer showing strength on the big board. Greeen line looks ready to roll over. 

The new leader is financial stocks, that is kind of odd it should be utilities, but they don't do well in rising rate environment. 
The strong jobs report is causing interest rates to rise and that drives trreasury bonds down. Stocks that are interest rate sensitive reacted this week with banks and stock brokers doing well and utilities 
XLF - Financial Stocks - Dark Blue dots
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown

On Balance Volume is still 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. It certainly was our first tip off to this pull back. So it is this chart that has me the most concerned this week. In fact if this does not pull up soon ... it could get scary.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16. 

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

OK well it is like this.... We are in a bull market and but this is a pull back. Last week I was "gently pulling my horns in" I am long safety, I have raised some cash and I await a buy opportunity. I have bought a ETF called VXX to hedge my risk and NO you should not bet the farm of VXX it is only to protect other positions. Don't bottom fish, wait to see the turn in the market.

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