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November 21, 2015 – Weekend Market Comment

November 21, 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).

Well like the sign says, despite a strong rally this week, I would like to report some market "suspicious activity". Market tops have many "tells" that an astute market technician can read. Below are a few I see this week. This is not a time to panic, but you are kidding yourself if you don't arm yourself with good market intelligence. 

Click here to see charts: Charts 100 and 200 series.

Weekend Market Comment Core Charts

101 Bull Bear
Dark Green passes Red. The Bear is dead.
103 NYSE High Low Market Forces
This is looking a tiny bit better, notice the cross over in the lower window, now red is black, but it is important to watch. In the upper window, Yellow OVER green, still not real healthy.

105 Non Farm Payroll
Looks good date but Chart date is  Oct 1

107 Industrial Production
Not good but this is data from Oct 1

115 Renko
One down block could be a new downtrend
203 OBV
Red line must keep up with price. It is ok if it lags for a day but this is more than a day. This is your big warning.

207 VIX
Fear subsided a bit this week, could have a Nov 1 repeat?

209 VIX Evaluator
Drops slightly fear subsides.

211 S&P500 over 50 day
Leveling out here? Should keep going lower, if things are so fine.

213 Green Arrow
Only put new money to work when I draw a green arrow. This is NOT the time.
Click here to see charts: Charts 300 series

301 NASDAQ Summation
Summation dropping, expect market to follow soon.

303 Aggressive Defensive
Could continue or as in last summer just fizzel out here. Positive so far.

305 Consumer Bonds vs Equities
Equities beat bonds as a rate hike in December may happen.

307 Bond Direction
turning down again
309 Sectors
Beware when utilities and defensive stocks rise. Good news consumer stocks (Amazon mostly) prepare for Christmas.

311 Nations
China rally on government protected (you sell you go to jail) market.

313 Major sectors
Gold and Canada suck - like that is news?

! = Pay attention this chart is important this week.

What I Find Interesting

Carl Icahn
Please go to and watch his video, except for endorsing President Donald Trump, I agree with all that is said, we are in a huge credit bubble.

Commodities In Free-fall
I'm worried about what we have is a near deflationary free fall going on in commodities. The other side of this is the very strong U.S. dollar hurting U.S. exports.

Commodities CRB index:


Crude Oil WTI broke below $41 a barrel:

Natural Gas $2.33:

According to Bloomberg, it has gotten so bad that Goldman Sachs this week closed, what was 12 years ago, one of the worlds most popular funds, the BRIC fund (Brazil Russia India China). As each of these nations enters an all out depression. (Canada and Australia are you next?).

So why do you care? Well we already had a market meltdown in 1997 when developing countries could not pay back U.S. denominated debt when their currencies were falling. Now look at today -- the world is awash in easy credit and outside of the U.S. dollar and the Swiss franc, the worlds currencies are falling hard. As emerging market currencies decline, the income streams needed to service all the debt denominated in U.S. dollars declines, a self-reinforcing dynamic: as income and valuations fall, capital flees, pushing the relative value of the currency down even more, which further raises the risk premium that then triggers even more capital flight. Their is a lot at stake, (estimated $11 trillion in emerging market debts denominated in other currencies). If you are wondering where that debt came from it is U.S. banks making easy money on loans collateralize by the last U.S. bail out (TARP) in 2008. We could be setting up the second act.

The Market is Weaker Than It Looks

First lets look at the really really big picture this is 20 year view of the Wiltshire 5000 stock index, the broadest U.S. market index of them all.

In the main window I have a bollinger band with a cyan colored dotted center line. I have placed large blue shaded boxes at each point the dotted center line went sideways or declined. Look in those blue see the problem?

The next window down is the MACD, I placed a red arrow showing where MACD is now showing both a high end of the range and a recent decline (cyan over gray). Guess what is next?

Finally at the bottom is (green line) ATR or Average True Range, think of this as how wide prices move on a daily basis, it is a kind of volatility measure. Big ATR swings is a sign of greed and fear frantically switching back and forth. Notice investors hate too much volatility and step aside when the market becomes a casino. I have drawn a pink zone where any rising volatility becomes uncomfortable. The deeper the 14 month ATR rises in to the zone of discomfort, the greater the overall volatility and the more investors give up. So you see what I am getting at?

Take My Breadth Away

I presented this chart previously, but it is a goody! The chart is the RATIO of the SnP500 equal weight(RSI) vs the Cap Weight SnP500(SPY). You can take away two things from this:
  • The smaller SnP 500 stocks are often international firms and that the global economy sucks. 
  • As we discussed last week only 8 U.S. stocks are controlling most of the market: FANG (Facebook Amazon Netflix Google) and NOSH (Nike O'Reilly Starbucks and Home Depot). 

Just like produce at a supermarket, it is question of what you get for your money. You can not just blindly buy a "good company" stock in the stock market at any price. In any "market" it is always a question "what quality, at what price?". At the turn of the year, the FANG stocks (Facebook Amazon Netflix Google) had a combined market cap of $740 billion and combined 2014 earnings of $17.5 billion. That was a P/E multiple of 42.

Now look at where we are now, at this week’s close, the FANG stocks were valued at just under $1.2 trillion, meaning they have gained $450 billion of market cap or 60% during the last 11 months - even as their combined earnings for the recent earnings period were up by only 13%. To put that partial year market value gain, of 1/2 a billion dollars in to perspective, the GDP of Switzerland is $685 billion and Taiwan is $480 billion.  Now are you concerned?

As you can see when a market gets to concentrated on the big boys it is often a sign of an impending  bear market. I recall 1999 when all people would buy was Enron and Yahoo, that did not end well.  In all fairness, I should say that the Midcap 400 did do better this week, so there is hope. I am just saying, keep this chart in mind when you think everything is rosy.

What I Think
I did very well this week short until Monday when the market bounced back, my stops kicked in just before a meeting in Vancouver. Lesson here, let the computers watch your back.  In fact this was the best up week for the markets since December 2014. The run up was so dramatic that the DOW broke above "break even" so far for 2015. "Whoop Whoop" we are back to even!

Despite the current upward bounce I am very concerned that the pros are leaving the market. Here is a chart form Merrill Lynch saying that big institutional (smart money) is exiting the market. Always a sign of trouble.

We have our own indicators here, here is the Primary Sell and OBV charts. Both behaving like the big money is not participating.

The bottom line is this, we are in a bounce up, I expect mostly upside for the next few days. Have a look at the VIX chart, next week as the market rises, you will probably watch the VIX slip back another point to about 14.5 -- and if you look at the S&P 500 chart we might reach a double top about 2120. But expect a sharp reversal after that. In short this might be a huge bull-trap. This is a very dangerous market and so far the smart money is on the sidelines. I have listed in prior post all the problems globally and I see 2016 is going to be a tough year.

View here about Hedge Fund superstar David Tepper, who agrees about the common investor raising some cash.

To sum up, currently I am very cautious. To change my mind I will need to see a strong move up in the broader RSP index, some increase in the OBV line and a bit more positive action on the NYSE high low market forces chart. It is U.S. Thanksgiving this week, be careful in the markets and YOU won't be "the Turkey".

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

Don't squint, All graphics on this page can be enlarged by clicking on them.
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CLICK HERE: To see the 100 and 200 series charts

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