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September 11, 2015 – Weekend Market Comment

September 11, 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 (link at the bottom of this page).

The Blah Blah Blah (courtesy of CNBC)
Dow closes up 100, best week since March. U.S. stocks closed mildly higher Friday despite a renewed decline in oil prices and uncertainty ahead of the key Federal Reserve meeting next week.

The Dow Jones industrial average closed up 102.69 points, or 0.63 percent ,at 16,433.09, with McDonald's leading advancers and Cisco the greatest laggard. UnitedHealth jumped 5.6 percent for the week as the greatest gainer for the week, while Chevron ended down nearly 1.2 percent as the greatest decliner. The Dow transports closed up 0.26 percent for a weekly gain of 3.3 percent, its best week since the one ended July 31. The S&P 500 closed up 8.76 points, or 0.45 percent, at 1,961.05, with utilities leading eight sectors higher and energy and materials the only decliners. Information technology was the greatest weekly gainer with a 3.1 percent rise. Energy was the only sector lower on the week. off 0.7 percent. The Nasdaq closed up 26.09 points, or 0.54 percent, at 4,822.34. The iShares Nasdaq Biotechnology ETF (IBB) gained 1.15 percent Friday. The index ended the week 5.23 percent higher, its best since the one ended July 17.

What I Think

So now what? The market has been dropping for days and this week it manged a bounce. Is this the bottom? Well you know that is not possible to know, all you can know is trends and likelihoods. Lets see what our tools tell us is likely.

Section one below is used to answer the question: "Should I be in the Market at All?" Well the answer is clear - NO. Wait until things are bit better, yeah you might miss the bounce or you might miss a crash, but a bounce will be slow so get in later and a crash would be quick so better stay on the sidelines.

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 have a cross, the red is over green and this is officially a bear market. Now there is a chance that this will just perk right up again or this could be the start of a crash. I would not take any aggressive positions until Green returns atop of red. I have written a whole CME4PIF thought on the subject, you will find the link in section 4 at the bottom of the page.

Industrial Production
America is nothing without manufacturing might. This recent dip is not a good thing. Looks a little better this week, at least it is not falling.

Non-farm Payroll Employment Index
As a consumer economy America is dependent on strong employment. This chart alone is the brightest spot on this weeks charts! It is the only reason I am not stuffing U.S. dollars under the mattress.

NYSE New 52 Week Highs - New 52 Week Lows

Learn to use this chart it is in Lesson 5 of the CME4PIF School there is a link on the bottom of each weekly market comment.

Well as I said last week we owe a debt to this little chart for tipping us off to the recent correction. Again I would sit on my cash until green is over yellow. Yes each week they are getting closer, but wait until the event.

Market Renko
Renko charts are not based on time (note the funny date scale) and only draw a new brick if the market moves in to a new territory. They really can simplify the whole question of direction. 

As you can see we are in a strong downtrend. Nothing about this chart screams -- buy. In fact it would be easy to imagine there could be 6 more black down block on this chart soon. Support might not come until IWM hits 102 like last fall.

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
Experts are buying insurance, by the bucket full. Still very dangerous.

On Balance Volume

Now this is VERY interesting. When the red OBV line exceeds the current market price there is very strong evidence we are going higher. This is a very strong buy on this dip. Very Positive.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, retreated to just above 22. It is very dangerous to play the market when the VIX is this high.

VIX Evaluator
Don't forget this is an experimental VIX indicator. Looks like it wants to calm down signaling all clear.

S & P 500 Over 50 day
Well here is your bounce. Some 18% of S&P 500 stocks are now above their 50 day moving average. A positive sign.

Green Arrow
Wait for a green arrow before putting new money to work. Recent signals have been of little value until we break out. We are just a hair short of drawing a new green arrow this week. This bounce has been impressive.

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

Nasdaq Summation
This chart tells us if technology is a good bet now, general the NASDAQ leads the other indexes. The summation index can often spot weakness-strength before the price reflects it.

Nasdaq bounces and more importantly the summation index is turning around. Very Positive.

Aggressive Defensive Chart
The Midcap 400 expressed by MVV is being bought, a very strong signal. Of course you can see that it is already almost overbought, so a pessimist would  say we are headed for a Bull trap. 

Bond vs Equities
Consumer stocks are leading the bounce and bonds are under-performing.
Bonds are not outperforming equities, a sign of fear from the upcoming fed meeting and possible by the dip confidence.

Bond Direction

The direction of the bond market at this time is critical. The Bond Bull began in 1981, we have has a 33 year bull market in U.S. Bonds. When it unwinds it will have major implications.  This fall, as the US federal reserves tries to take off the economic training wheels, interest rates are near zero and so have no place to go but up, then again many feel the economy cant take the shock. The 50 day average line (red) is clearly in a downtrend. The US treasury market is is twice the size of the stock markets. As investors flee bonds who will buy them from fleeing investors?

Bonds have pulled back to the rising 50 day moving average. Probably reversing the trend unless the equity sell-off returns.

This chart shows that everyone wants a bit of tech (Google effect), but perhaps that was over done. Utilities and financials lead, both are not a good sign.
    XLF - Financial Stocks - Dark Blue dots
    QQQ - Nasdaq - Purple
    XLY - Consumer discretionary - Green
    XLU - Utilities - Red
    DEF - Defensive stocks - Brown

It is a global Market are there better place to put your money? Remember this chart is compared to the S&P 500 U.S. market. If the U.S. market is falling these all might be along for the ride, even if this chart shows them rising. When America has a cold the world gets the flu.

    XIU.TO - Canada - Blue dots
    DAX - Germany- Purple
    FXI - China - Green
    EEM - Emerging- Red
    EPHE - Philippians - Brown

Major Market Sectors

This shows the over all U.S. Market, from the equal weighted S & P 500. Below it are broad sectors you might want to look at. 

I am surprised to see emerging markets doing better. Must be a case of no one left to sell.

    Canada Dividend Stocks vs S&P 500 in Canadian $ - Red
    Emerging Markets vs  EW S&P 500 - Pink
    US Bonds vs EW S&P500 - Blue
    Commodities vs EW S&P500 - Brown
    Gold vs EW S&P500 - Gold

Section 4: Special Interest

Buy Now?
Since the Bull Bear lines have crossed and the question of the moment is: "is this a Bull trap bounce in a crash or is this the recovery". In short buy or wait. The answer is in this link to a special cme4pif Thought called: "A Bad Idea Whose Time Has Come". 

Wana Deal On A Rolex? Try Calgary!

Energy accounts for 10% of Canadian GDP and around 25% of exports and the swift fall in oil prices is having a profound effect in the nation’s oil producing regions. Take Oil company H.Q. Calgary for instance, where single-family home sales fell 34%. The Canadian Federal Department of Finance compared the potential real-estate fallout in Alberta — a result of the late-2014 collapse in oil prices — with the pain inflicted on the provincial market during the deep recession of the early 1980s. Read about pawn shops of Calgary filling with luxury goods here.

Market Forecast

Market Forecast Timid Bear

You should be in CASH


So here we are, our section one indicators say to wait, it is too early to jump back in, in the other sections we see a real surge in OBV and the Green Arrow is about to signal buy. It is tempting to call the bottom here. I don't doubt that when the Fed meeting comes they again will not raise rates and the result will be a one day surge follow buy a "sell the news" retreat. But then what? We still have real weakness from China and they continue to dump U.S. treasury bills. Commodities are in the tank and demand everywhere is slowing. If you are under age 45 you might take a chance here. Otherwise for those over age 45 I say it has only been an 8% pull back and the bounce has only been on for a week, so for me the route is to stay liquid just a little bit longer.

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

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