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November 7, 2015 – Weekend Market Comment




November 7, 2015 – Do you see tiny type?... me too, no idea why blogger has so many bugs. . .

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)
Stocks close mixed but post 6-week win streak. U.S. stocks closed mixed Friday, but held solid gains for the week after a better-than-expected October jobs report increased confidence in the likelihood of a December rate hike. The Dow Jones industrial average closed up 46.90 points, or 0.26 percent, at 17,910.33, with Goldman Sachs and JPMorgan Chase leading advancers, and UnitedHealth leading decliners. JPMorgan was the best performer for the week, while former darling UnitedHealth was the worst.

Treasury yields held near highs after spiking on the jobs report. The 2-year yield held near 0.89 percent, after earlier hitting 0.958 percent, its highest level since May 2010. The 10-year yield was 2.33 percent, after hitting its highest level since July 21.

Emerging-market currencies declined Friday, after strong U.S. employment data paved the way for the Federal Reserve to raise interest rates next month and sent the dollar to its highest level in almost 13 years.

The S&P 500 closed down 0.73 points, or 0.03 percent, at 2,099.20, with utilities leading six sectors lower and financials the greatest advancer. The two sectors were the worst and best performers for the week, respectively. The Nasdaq closed up 19.38 points, or 0.38 percent, at 5,147.12. The Dow transports outperformed the major averages, ending 0.75 percent higher Friday.






What I Think                
I think people final see the Fed is going to pull the trigger and do a small increase in interest rates, probably in December. 

I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective.” Ms. Yellen said during a speech in Amherst, Massachusetts


The nail in the coffin was the jobs report that shows America is not only back to work, but also real wages are rising a bit. Also in some new thinking it might even prove harmful to leave rates too low too long. Read about in Forbes, Bloomberg, even Ben Bernanke sees trouble.

So the fix is in and the Fed must raise rates even if symbolically. Baring some catastrophe after that, the only direction is slowly rising rates. This is pushing up the U.S. dollar. Meanwhile China and its emerging market partners are stalling with China lowing interest rates and devaluing its currency.

So far the stock Market has loved it with many weeks of gains but as you will see this bull is getting tired and may need a rest or a little pull back before resuming. Of course the strong dollar and rising rates may spook some investors. On the bigger horizon, the strong dollar will hurt exports and this market is very concentrated in a few good names. Also we will look at how money is flowing out of China, and what it could mean. The worlds number two economy is looking more like a Ponzi scheme than an economy. We could see a full blown bear market, if you want a guess when, I would say perhaps in May. 2016 maybe the ultimate year to Sell In May and Go Away.



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                   
Learn to use this chart it is in Lesson 1 of the CME4PIF School there is a link on the bottom of each weekly market comment. 

Nice almost ready to call this a bull market.





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.

Ahh, much better . . . but there is a tiny little red dot in the 2nd panel of the  chart. Keep an eye on that.





Industrial Production                   
America is nothing without manufacturing might. 

Long term DANGER:








Non-farm Payroll Employment Index                   
As a consumer economy America is dependent on strong employment. 

Jobs Jobs everyone has a job and they are paying a bit better too. 







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. 

Solid up trend.
 

 


Section 2: Short Term Timing

Consider this as fine tuning. As you learned in section one of the CME4PIF 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                   
Learn to use this chart it is in Lesson 2 of the CME4PIF School. There is a link to the school on the bottom of each weekly market comment. 

Experts are not worried, but I bet they start to get worried about now . . . this should start to decline next week as over-confidence subsides.






On Balance Volume                   
When the red line diverges from price expect changes.



This is the most important chart this week. . . Antennas up!







VIX                   
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell below 15.







VIX Evaluator                   
Don't forget this is an experimental VIX indicator.

Sideways flat . . .







S & P 500 Over 50 day                   
Learn to use this chart it is in Lesson 4 of the CME4PIF School. There is a link to the school on the bottom of each weekly market comment.

This turns down long before trouble, but it has begun. 






Green Arrow                   
Learn to use this chart it is in Lesson 3 of the CME4PIF School. There is a link to the school on the bottom of each weekly market comment. Wait for a green arrow before putting new money to work. 

In most case this going up is healthy, but in this case it is more like, a rotation because we are out of room for upside on the broad S&P500 so now we look at the mid-cap 400.



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.

Nothing but up:
 




Aggressive Defensive Chart                   
Here we compare fast moving mid cap firms (ticker MVV) against the old reliable big dividend payers (ticker DVY).

I think in normal times this would start rolling over, but DVY is not going to be a favorite if the Fed is raidsing rates. So you may get a false feeling things are stronger than they are. 






Bond vs Equities                   
If this is such a strong market then consumer stocks are under-performing. Bonds tank on fear of a rate hike.





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. Treasury yields held near highs after spiking on the jobs report. The 2-year yield held near 0.89 percent, after earlier hitting 0.958 percent, its highest level since May 2010. The 10-year yield was 2.33 percent, after hitting its highest level since July 21. Finally the start of the end game?







Sectors                  
Financials are on the rise particularly regional banks and insurance. Utilities are in the dog house.

    XLF - Financial Stocks - Dark Blue dots

    QQQ - Nasdaq - Purple
    XLY - Consumer discretionary - Green
    XLU - Utilities - Red
    DEF - Defensive stocks - Brown








Nations                   
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. 

With all the trouble at VW I am surprised Germany is doing well.
    XIU.TO - Canada - Blue dots
    DAX - Germany- Purple
    FXI - China - Green
    EEM - Emerging- Red
    EPHE - Philippians - Brown



Speaking of nations Canada is still slip sliding away, run up to resistance and on down it goes again . . . Wiping out all gains for a year and a half. 





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. 
It is all about the USA with a strong dollar expect more trouble in gold. 
    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

 




Capital Flight from China                  

Bloomberg has been talking about the mass exodus of money from China. There is suppose to be a limit of about $50,000 on how much currency can leave China. For the most affluent people, Chinese banks offer a legitimate channel to get money for home purchases overseas. China Construction Bank Corp., the nation’s second-largest lender, last year started a product that enables its private banking clients to borrow up to HK$20 million in Hong Kong by using yuan-denominated deposits and other assets on the mainland as collateral, according to an advertisement. The result is property bubbles in London, New York, San Francisco and Vancouver. In Vancouver over 30% of condos sit vacant, just storing the money stolen from China.

This week Groundbreaking study shows 70 per cent of detached homes sold in a six-month period on Vancouver's west side went to Mainland Chinese buyers; many of them housewives or students with little income. Tax experts have raised concerns that offshore investors are exploiting tax code loopholes to evade GST and capital gains. Housewives and students with little or no declared income can live briefly in Vancouver and flip properties tax-free, reports say, while claiming a home is a primary residence. In some of these so-called “astronaut” family arrangements, the real home-buyer lives and works in China while flowing money through relatives into Vancouver in order to store wealth.

 


Also, recent academic studies have shown that about 30 per cent of households in some of Vancouver’s wealthiest west side neighborhoods, where Chinese migrant buyers are dominant, declare meager incomes much below their annual housing costs.  In Vancouver, a Supreme Court case showed that one lender, Canadian Imperial Bank of Commerce, had assisted such transactions. The case arose when a CIBC financial adviser allowed a wealthy Chinese client to route two deposits of $50,000 through her private accounts to buy a home, leading to the dismissal of the banker for “commingling” her own funds with her client’s.
 

 


As it gets harder to move money via banks and cash smuggling, a new mode of transportation has come along, elctronic currency.
 
 

For most of 2015 Bitcoin has bounced between $200 and $300 U.S. dollars but for the last seven weeks it has been on a tear, often topping $500 a coin. Part of this was that the EU recognized it as a currency, a vague term, but selling a bitcoin now can not be taxed like say a tomato. 

Of course the big buyers of BitCoins appear to be coming out of Hong Kong. You can watch BitCoin sales in real time. At the time of this writing it was almost 100% into the USA and China. 



But why is the money leaving, well who wants to invest in a country where selling stock is a crime and you can get charged with corruption anytime you say the wrong thing. But more importnat, the party is over, as a recent bit in the Wall Street Journal Point out:  

China’s exports fell in October for the fourth consecutive month, as a once-powerful engine of the country’s growth continued to sputter in the face of weak global demand.

The world’s appetite for China’s goods—the world’s second-largest economy accounts for nearly one-fifth of global factory exports -- has been lower than expected this year. Meanwhile, weak domestic demand continues to reduce imports. Both are contributing to China’s growth slowdown.

Sunday’s results suggest the export scene is worsening. China’s General Administration of Customs said October exports fell 6.9% year-over-year in dollar terms, after a drop of 3.7% in September. The October figure was worse than the median 4.1% decline forecast by 11 economists in a survey by The Wall Street Journal.

Imports in October fell by a sharper-than-expected 18.8% from a year earlier, following a 20.4% decline in September. China’s trade surplus widened in October to $61.64 billion from $60.3 billion in September.

China’s Commerce Ministry said Thursday in a report that exports are likely to see little increase in 2015, while imports will likely report a “relatively big” decline as falling commodity prices continue to weigh on trade flows.

Exporters at the massive Canton Trade Fair in southern Guangdong province this month said the recent modest depreciation of the yuan has provided little relief.

“A lot of Westerners think this helped us out a lot,” said Chen Shuming, sales manager with Fujian Furniture Industry & Trading Corp. “But the 2% depreciation actually hurt us. It was in every newspaper and customers called us within hours pushing for 6% discount, so we had to give them 4%" 


What Works Now                   

Constellium NV

Huge increase in sales in one Europe's leaders in Aluminum



Short Junk Bonds


Financials services and insurance




Outsourcing work to India
Canadian Lumber








Market Forecast                   

A mechanical trading system that stress preservation of capital.




Market Forecast Timid Bull




Hold the equal weight S&P 500 ETF RSP, defensive ETF DEF or the value ETF IWD.








Summary                   
The market is strong but probably overbought, but overbought can go on a long time. Friday's jobs report caused some minor profit-taking in major stock indexes, but not enough to alter the current uptrend.  Equities are up against chart resistance along their summer highs and in a short-term overbought condition. That could lead to some backing and filling like we saw this week, but nothing too serious. The longer range trend remains positive. Initial chart support for the S&P500 is at 2060 which coincides with its rising 200-day moving average. So it should not drop below the 200 day moving average any time soon.

Recently we have had mixed results for major stock indexes, but
beneath the surface we have big sector rotations. That was due mainly to anticipated fed rate rise, pulling up in bond yields and its effect on various stock groups. It helped banks, brokers, and insurers, but hurt utilities, REITS, and dividend-paying consumer staples. The resulting jump in the U.S. dollar also had a bearish effect on gold miners and other commodity stocks. The rising dollar may also have contributed to this week's jump in small cap stocks which are starting to play catch up.


Bottom line the market is tired ... time for a rest.

















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.

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