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June 27, 2015 – Weekend Market Comment

June 27, 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 mixed on Friday, posting a loss for the week, as investors digested earnings reports and awaited resolution on the Greece debt talks. The Dow transports eked out a gain of 0.03 percent for the day but closed 2.01 percent lower for the week. The S&P 500 closed down 0.70 points, or 0.03 percent, at 2,101.61, with information technology leading three sectors lower and utilities leading advancers. Telecommunications was the best performer for the week, up 1.16 percent. The Nasdaq closed down 31.68 points, or 0.62 percent, at 5,080.51. 

What I Think

The market wants to go higher, but it is summer so volume is low and everyone is waiting to see if Greece will stay in the European Union. The result is we are just in a holding pattern. 

As I write this future Markets in Europe are trading down as much as 3%. In a televised address to the nation, Greek PM Alexis Tsipras assured Greeks that their deposits are safe despite an upcoming one week bank holiday and despite the fact that Greek stocks will not open for trading on Monday. Tsipras also said Athens has re-applied for a bailout extension and urged Greeks to "remain calm" in the face of what is sure to be a turbulent week. 

Around 600 million euros was withdrawn from the Greek banking system on Saturday, one senior banker at one of Greece's four big lenders told Reuters. Though that was below the level of over 1 billion euros seen on some days over the past two weeks, the figure was almost exclusively from ATM withdrawals, where the average daily limit of cash that can be taken out is 600 to 700 euros.

As I said before, what is going on is the market is wiggling in little 2.5% ranges, back and forth but mostly that is just noise, overall we are going sideways. Also the wiggles are getting smaller. That is consolidation.

Here is the slope of the 50 day average of the S&P 500 (equal weighted) as you can see the slope is now negative.

It gets worse of you just look at the NYSE made up of larger firms having trouble with a strong US dollar:

U.S. Dollar:

and a weak energy sector:

My biggest worry is this graph, falling industrial production:

Falling share prices in China are a sign that the markets are getting a bit more rational over there. A panic set in this week as margin calls came in an investors were forced to sell. The worst damage was in Shenzhen, where the city's benchmark index fell 7.87 per cent, officially entering bear market territory after a fall of more than 20 per cent from a June 12 high. In the past two weeks, 14 trillion yuan (HK$17.4 trillion) has been wiped off the value of mainland stocks - some 20 per cent of mainland market capitalization. To put that in perspective that is three times the value of Apple, the company with the world's biggest market cap. Don't forget a few weeks ago, I showed you these investors are mostly buying on margin so much more pain when no gain, could be the start of a major stampede:

But most of all remember this is summer. The markets are behaving like summer, lethargically going no where and most summers include a decent pull back and a summer rally. In a bull market a pull back is an opportunity, but wait until the market turns back up and beware the dead cat bounce.

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
Well of course the big picture is now and has been for several years now, you can't be wrong if you are long. I said before that you can expect a repeat of Jan 2015 and so far that is what is happening. A month of sideways is now three weeks old.

NYSE New High Low 
More hesitation. We may look back on this as the sign of the long term top.

Section 2: Short Term Timing
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 a bull market. 

Primary Sell  
The market hates uncertainty and a Greece exit of the Euro creates uncertainty. Smart Money is predictably buying insurance. In fact I wonder why they are not buying more, could it be they just don't think Europe will loose Greece? The danger is that the smart guys keep getting caught on the wrong side of the market, if it goes on too much they lighten up.   

On Balance Volume our "canary in the coal mine" is looking like it should, it is not important that it is going down, just that the red line is near the current market or above. A very good sign!

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

Aggressive Defensive Chart
Defensives win win win. Then again, according the stochastic oscillator perhaps for not much longer.

Green Arrow Chart
Our last green arrow was not a great signal and clearly this is not a great time to enter the market. Pay special attention to the lower portion of this chart, 

mid-caps vs the over all market is falling, fear is coming in.

S&P500 Over 50 Day
I said two weeks ago it might bounce, it did, then this. 

Section 3 Allocations and Sectors
OK Now you know  the market direction, where should you put your money?

Nasdaq Summation
Not much fun in the high tech world, the recent rally in health care and semiconductors has fizzled.

Bond vs Equities
Well equities clearly did better than bonds. But really it was bonds imploding, not the equities market that made this work. Expect this continue if rates move up, equities will be the only game in town. Nice to see a bet on the consumer, the fall back trade. 


The consumer has been the play for the last two weeks, but utilities are getting a bounce, an odd thing in a rising rate environment.

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.

Shorting the market is dangerous and you never should short a Bull Market. As you know the  Bull Bear Lines are telling you, this is a bull market in U.S. Equities. However the Bull Bear lines can be used to look at other markets like Bonds or China.

Never bet big money on short positions, but if you have a little gambling money perhaps you can try these ideas. 

Short Bonds
The Bond Market continues to be in a slump here is TLT about to violate the rule of green over red.

You can short treasuries using the TBT ETF. Just one caution this trade could be a mess if there is big trouble in the Greek Exit.

Other ways to play rising bond yields are to buy insurance companies (like Prudential shown here) and financial stocks like banks. 

Short Commodities
If you read my rant call Pop Goes the Commodity Bubble, as many economists did at the World Bank, you will know that the game is up for making a killing taking rocks out of the ground. Here is the Bull Bear Lines for Commodities

Here is a short ETF in Base Metals

Short China
You might think things are awful in China, but the Bull Bear Lines have NOT (yet) crossed.

You can short the Chinese market using  FXP

U.S. Housing
Americans continue to buy homes in fact the housing market average price has just about fully recover to the 2007 level before the financial crises. In Fortune Magazine they feel it is already too late

This is a bull market, so if you respect that you must be long and buy on pull backs. I expect a strong sell off on bad news from Greece followed by a bounce based on the idea that this is not the last nail in the Euro coffin after all. That said the broader market is much weaker than it has been these past few years. Bounces will not be what they used to be. If you want to play the bounce please WAIT FOR THE TURN, no catching falling knives. This market has some very concerning things, that COULD be the start of a long term market top. Things like a 6+ year run up without a big correction and specific things like falling industrial production, a sell off in China and the possible first nation to exit the Euro. 

That said, consumer stocks and housing stocks are rising, U.S. employment is rising. Even without Greece in the long run Europe is still rich and powerful none of this stuff looks like it will kill the 6 year bull market.  Lets face it nobody is starving in America:

So you play this but being a little deeper in cash to buy good stocks and broad ETFs on the dips and not playing volatile equities. Be patient look for opportunities.

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.