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May 16, 2015 – Weekend Market Comment

May 16, 2015 – Welcome to my weekend market comment, an analysis tool I use in my own portfolio decisions, published free to the web every weekend before the New York opening bell. For full details read my disclaimer below.

The Blah Blah Blah 
U.S. stocks closed narrowly mixed in choppy trade on Friday, as disappointing data weighed on investor sentiment amid dollar declines and lower bond yields. The S&P 500 gained 1.6 points to set a second record close for the week, after ending at a high on Thursday. The Dow Jones industrial average also closed higher, less than 20 points below its record close. The Nasdaq ended mildly lower, remaining within 50 points of its closing high. The major stock indices fluctuated around the flatline, with the S&P trading briefly topping its closing high set on Thursday but holding below its intraday record.

The Dow Jones Industrial Average closed up 20.32 points, or 0.11 percent, at 18,272.56, with Cisco leading gains and Microsoft the greatest laggard. The S&P 500 closed up 1.63 points, or 0.08 percent, at 2,122.73, with utilities leading seven sectors higher and financials the greatest laggard. The Nasdaq closed down 2.5 points, or 0.05 percent, at 5,048.29.

What I Think
The market is reflecting a calmer bond market situation. Yields are down again. That should be supportive to the market. One of the reasons stocks are going higher is people are reallocating out of fixed income. Yes the Market is Calm, perhaps too calm, readers will notice this week that the VIX is flirting with what normally would be it's lower limit. Also the pros are picking mostly safe bets (notice DEF in the sectors chart and renewed growth in the NYSE High Low Chart) and so the S&P 500 over 50 day chart is still advancing timidly. No one expects trouble so we drift ever upward. When Wall Street is complacent ... I start to get nervous.

It All Shows Up In The Charts . . . 

Section 1: The Big Picture
These charts tell us if we should even be in the market at all.

Bull Bear Lines
We continue to consolidate sideways anticipating a break higher or lower, of course who knows but odds are the break will be in the direction of the trend, and when this chart shows a green line above a red the trend is up. In fact you can create a full trading system on this graph alone, see CME4PIF School lesson One and so far in the last 10 years it would have served you well to be long when green is over red. 

Primary Sell 
Smart Money is not buying insurance, but it is anemic. 

NYSE New High Low
Looks like we are back on a clear uptrend.

The technique, originally called "continuous volume" by Woods and Vignola, was later named "on-balance volume" by Joseph Granville who popularized the technique in his 1963 book Granville's New Key to Stock Market Profits. 

On Balance Volume is not keeping pace with the current market, however for just one day, not enough to panic over. 

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12. that's near the historic low, no reason for it to bounce from here but hard to imagine it a lot lower. Even the CCI (top of chart) is almost to oversold territory (brown area).

VIX Evaluator
Don't forget this is an experimental VIX indicator. Looks like it might be trying to continue down, but far from clear.

Section 3: Timing and Sectors.
Consider this as fine tuning. As you learned in section one of the CME4PF School most investors don't need to plan the short term, But you can use this section to decide on ratios of risk. For example you can time a strategy of moving from a defensive ETF like DEF and an aggressive ETF like QQQ. or between a ratio of equities and bonds. You could move from broad safe indexes like DIA (the dow 30) and  aggressive equities like Google and Amazon. Remember don't use these  charts to anticipate, and don't do counter trend strategies like shorting this bull market.  

Aggressive Defensive Chart
The market surged so of course Thursday's surge is going to be more in MVV than DVY but notice how StochRSI looks overdone.

Bond vs Equities
Well up until Friday equities clearly did better than bonds. Expect this continue if rates move up, equities will be the only game in town.

Green Arrow Chart
The Green Arrow Chart tells us when to put new money to work. You can learn about it in the CME4PIF school. 

Still not the best time to enter the market. Pay special attention to the lower portion of this chart, performance has begun to return. We are close to drawing a green arrow.

Nasdaq Summation
Perhaps a return to high tech.

S&P500 Over 50 Day
Consolidation is bitch, this thing just wiggles and this week looks anemic as it did two weeks ago, yes I see it is climbing a bit. 

Notice as of Friday a strong move in defensive ETF like utilities DEF while former superstar banking pulls back relative to the S&P500.
Very inconclusive. 
XLF - Financial Stocks - Dark Blue dots
QQQ - Nasdaq - Purple
XLY - Consumer discretionary - Green
XLU - Utilities - Red
DEF - Defensive stocks - Brown

Section 4: Special Interest
In this section I will introduce some new ideas or interesting things in the market. 

Regular readers know I love the world wide monopoly on the "new money", VISA is one of my favorite stocks. Visa Inc. and MasterCard Inc., the world’s biggest payments networks, climbed the most since October after China’s government indicated it plans to end a monopoly in bank-card clearing. Rules published a couple of weeks ago by China’s State Council, which take effect June 1, clear the way for Visa and MasterCard to gain a foothold in that country. It’s the most explicit China’s government has been about its plans to open up the market to U.S. firms.

Here is an interesting chart ... it shows some National indexes against the SPY S&P500 ETF. The brown line is the Philippines ETF EPHE experiencing a nice bounce after investors look to renewed growth. You can learn more here, 3 reasons foreigners can't get enough of Philippine stocks. That article is very polite but the truth is this is just the Sweat Shop De Jure, with out the urban filth of India and the tyrannical Chinese government

Are We Overvalued
Consider this, if you knew the future and wanted to be an idiot, you would have bought at the last peak about 8 years ago and held on, you  would have gone through the worst draw down in our lifetimes, and today you would still be up 80%. Considering the S & P historically gains 9%  a year, the run up from 2009 to now has been amazing. A correction here would not be unwarranted. 

You might want to look at this bit from MarketWatch, It shows expected returns following big bull markets like the one we are in.
Stocks are overpriced, overleveraged, headed for trouble

We are in a bull market, therefor you should only be long. Clearly from the VIX chart and the sector chart we are about due for a decrease in acceleration, perhaps even a pull back, so take some profits. Readers should note that DEF the defensive ETF and the OBV indicator show we are nervous and buying only safety such as large stocks.  The Green arrow chart and the aggressive defensive chart are telling you the market might be ready to break out.  On the other hand Thursday's buying spree and the primary sell and Nasdaq summation chart says the experts are still buying. Sounds murky? Welcome to fun of a sideways market.

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

Don't squint, All graphics can be enlarged by click on them.