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June 6, 2015 – Weekend Market Comment

June 6, 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 
Optimism about U.S. economic growth mostly outweighed concerns about tightening as stocks repeatedly attempted gains after opening in the red. The Nasdaq outperformed, closing higher, while the S&P 500 and Dow Jones industrial average ended lower below their 50-day moving averages.

The Dow Jones Industrial Average closed down 56.12 points, or 0.31 percent, at 17,849, with Verizon the greatest decliner and JPMorgan Chase and Goldman Sachs leading advancers. The S&P 500 closed down 3.01 points, or 0.14 percent, at 2,092.83, with telecommunications leading seven sectors lower and energy leading advancers. The Nasdaq closed up 9.33 points, or 0.18 percent, at 5,068.46. About eight stocks declined for every seven advancers on the New York Stock Exchange, with an exchange volume of 783 million and a composite volume of 3.2 billion in the close.

What I Think
A lot of people wonder what happens when central banks raise rates in the fall, Valuations are high and the adjustment of the yield curve now is likely to be negative for equities in the short-term. The DOW and S&P500 lost ground this week. The Nasdaq, however, held relatively steady.the Nasdaq Composite Index bounced on Friday to end the week essentially flat. It also remains above its 50-day moving average. Although the broader market lost ground, it's doubtful that it will fall very far as long as the Nasdaq market continues to hold up. A lot of negative divergences pointed out over the few last weeks (one chart says this another that) remain intact. That situation will have to improve to signal that the market is out of danger.

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. However, we are at a very interesting point here, if this bull is over it will continue down, if not, this is right about where she will turn back up. As you can see our four day average just kissed our 50 day average and many time before that was the turn. So big swoon in June, or the usual shake out of the weak hands? In my summary I will make my guess, but you know the market often defies logic. Based on this graph alone you would have to guess upturn . . .

Primary Sell 
Smart Money was getting optimistic now they are buying insurance, but it is anemic. 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. 

NYSE New High Low
This is the graph that i said last week was giving me confidence in a long term bull, now ewww, not so much . . . 

On Balance Volume our "canary in the coal mine" is still not happy and until it is I am not going to sleep well. The danger is "smart money" is heading for the exits.

Then there is this guy who has been hanging around all week. . . His breath smells and he really is not much of a conversationalist . . .

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14. The index posted its second consecutive week of gains. You will recall a few weeks ago as this hit 11 and change I said that was in the range of historic lows and probably time to buy some protection. 

VIX Evaluator
Don't forget this is an experimental VIX indicator. Looks like it might be trying to slowly head up? 

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 the a bull market.  

Aggressive Defensive Chart
It still looks defensive but yes we are flattening and waffling . . . mehhh

Bond vs Equities
Well equities clearly did better than bonds. But really it was bonds imploding due to Germany, not the equities market that made this work. Expect this continue if rates move up, equities will be the only game in town.

Green Arrow Chart
Our last green arrow was not a great signal and clearly this is not a great time to enter the market. Mehhh.  Pay special attention to the lower portion of this chart, flat performance for mid-caps vs the over all market. 

Nasdaq Summation
Well this is telling you the NASDAQ is holding but with not a lot of gusto. Mehhh.

S&P500 Over 50 Day
Down we go as only a few favorites are still dancing at the ball. Mehhh.

I told you a few weeks ago the financials were do for a run and here it is folks. That is good news, don't expect it to continue. In fact you look at this set up and really I am expecting a strong move to defensives . . .
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. 

The Rest of the World
About a month ago I pointed out this gem: 
Reuters says Emerging Markets: Currencies plunge in global sell-off
Of course I predicted that back in 2013 In my CME4PIF post Pop Goes the Commodity Bubble. Lets see how the markets of the world are doing vs the USA. As you can guess weaker markets are forgotten in times of stress and they rush is on to safety (USA). You could have guested this just based on the rise (fastest in 40 years) in the U.S. dollar. The brown line is the Philippians and the red line is emerging markets. 

Last week I mentioned I had bought a position in EUM saying the party was over in the emerging world for now. Well in the chart below is a dotted line doodle showing my fast 5.5% gain, don't forget this is not some NASDAQ social media wonder ... this is really broad ETF that is short some 800+ stocks around the world, including these huge firms: CHINA MOBILE LTD, TAIWAN SEMICONDUCTOR, TENCENT HOLDINGS LTD, CHINA CONSTRUCTION BANK. So yes you can be really diversified and still have market beating gains with less risk. 

As I mentioned a month ago things were looking good for the big banks, I hope you followed me in on Goldman (ticker GS). I took some profits this week

We are in a bull market, therefore you should only be long. A pull-back in a bull market is a buying opportunity.  

Folks IF this is the turn, and that is a big IF then it probably will be this week. So how do you know? Well OBV will rise up to market prices, the NYSE High Low will diverge and VIX will fall under 13. So put your finger on the buy button BUT FOR GOODNESS SAKE DON'T PUSH IT UNTIL THE MARKET SAYS SO.  We are not in the business of catching falling knives. 

One trick you might use is an "automatic buy" IF things go well.  I use a process called  buy on stop. The effect is a finger over they buy button IF the market heads up. Yet if the market does not bounce, and price drop, there you are with no position and cash in your account with no tears. The best part is you don't need to watch the market like a day trader, you can be out enjoying the summer fun while your broker's bot will wait to do your bidding. 

If you don't want computers to trade for you, another variation on this idea is an alert at a price. There is no shortage of these free services to your mobile device. Alerts are available either as a service from your broker, as apps on your phone, you can even get them from charting sites like and most financial news sites like Google finance or Yahoo finance.   

As an example I have taken the basics of the Bull Bear line graph and zoomed in to see at what point I might buy RSP. As it turns out I picked the 50day exponential moving average. So that is a price of $81.91 Now I just set an alert or a buy on stop right at that price and I have a signal to get in. Some sites can even alert on a cross of the average and you don't need to keep changing a specific alert price.  

Diverging indicators are a sign of a rift in the market, it often shows a decrease in participation and prices at "perfection" -- that is common as the season switches to the summer low volume trading period. I would proceed long with caution, and be very aware of any spikes in the VIX and softness in the OBV indicator. 

So I plan to use this a buying opportunity and I am still cynical that it is real . . . I have a plan to let the markets show me what to do. I have lots of cash ready to pounce, but patience is key to surviving, wait for the market to show you the path. I leave you with these words from ZEN trader.  

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.