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December 05, 2015 – Weekend Market Comment

December 05, 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 we are at a tipping point. This next week decides if we are getting a Santa Clause rally no matter what or if Fridays big bounce up was ahead fake. Lets see what is in the charts.

101 Bull Bear
Still says it is a bull market (dark green over red) and now the short term (light green) is heading back up.

103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I am pulling in my horns. Notice the deep drop in to the red zone in the lower panel.

105 Non Farm Payroll
November data looks positive.

107 Industrial Production
Watch this carefully, all recessions have falling industrial production, but data is old from Oct.

115 Renko
Nothing but bullish
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
Looks like it is calming down BUT I did say it was likely to pull back to 14.5 and bounce so be careful.

209 VIX Evaluator
Look at this whipsaw.

211 S&P500 over 50 day
Rise to 65.8 due to strong bounce on Friday..

213 Green Arrow
Only put new money to work when I draw a green arrow.
New Green Arrow!

301 NASDAQ Summation
Nasdaq rebounds Friday, summation index goes sideways
303 Aggressive Defensive
Very defensive. CAUTION! Friday bounce possible head-fake.

305 Consumer Bonds vs Equities
Consumer flat @ Christmas, DANGER should be rising like mad. Bonds head for toilet ahead of rate rise..

307 Bond Direction
Sideways indifference

309 Sectors
Bullish but consumer is limp.

311 Nations
USA only bright spot

313 Major sectors
Glimmer of a bounce in gold that has set new low recently and is fighting a strong US dollar. Sign of fear?

 ! = Pay attention this chart is important this week.

What I Find Interesting
Well this is important, grab a cup of coffee and spend a very important half hour with me.  We are seven years in to this rally and this is late in the cycle. I am convinced that the 2008 crash was due to excessive credit and the solution has been so far, more credit. The world is awash in easy money and could catch up to us again in 2016. So I am going to write a series of articles to explain just what the problem with that is. In this post at stake is the world's largest fund manager -- BlackRock Inc., possibly in danger of dying the same way a iconic investment bank blew up in the 1980's.  Here is the first posting: The 2016 Credit Crisis Part 1: Junk Melt-down. (Don't miss the charts marked Hall of Shame and video of Carl Icahn and BlackRock's CEO.)

What Works Now
Interesting chart this week Charles River Labs. This firm provides all those lab rats the other biotech firms slaughter, humm looks like they are very busy.

Until a few weeks ago the big laggards were dividend paying sensible stocks. When the market gets nervous, the utilities and the dividend payers are the refuge. I noticed on Friday a big increase in volume in AT&T and P&G.

What I Think
On Wednesday as the markets were closing, my predictions were all coming true. As you read in my last two postings, I expected a rally then a fizzle.  The rally had fizzled about where it should and the 2 week bull I had predicted had run its course.  I was putting on short positions in anticipation of Thursday. On Thursday the market acted as expected and sold off hard. Then Friday came in with a net positive job report, but nothing remarkable. Although no new jobs in manufacturing, but a big run up in seasonal part time (mall Santa jobs) and waiters and bartenders. Lets see how (according to the press) the markets react to employment report news:
  • September report: Big sell off before report and sudden rally after. Why? Huge miss on jobs report means more fed easing.
  • October report: Big sell off before report and sudden rally after. Why? Strong job numbers mean economy is recovering.
  • November report: Big sell off before report and sudden rally after. Why? Middle of the road report means no recession yet.
Well it appears any news gets the same market reaction. Now you know why I tend to follow charts more than fundamentals.

Heads up
This is a dangerous point in the market, we just completed a double top (see grey 1 and 2), and that often is the sign of a reversal. The charts below are the S&P 500 and the Nasdaq. In the lower panels I show two indicators that ware almost the same thing; PMO and MACD in the pink highlight dots. This is saying the Friday rally could still be a head-fake.

This week we also got the ISM  PMI report on manufacturing. Notice it dropped below 50. When that happens you have about a 70% chance a recession has already begun. A hot-shot on Bloomberg TV says not to worry, this is an antiquated signal in this consumer driven economy. In other words, life is fine just keep buying FANG stocks regardless of the share price.  Well Bloomberg reporter wizz-kid I disagree. No Ford, No Caterpillar, No GE, No Stanley Tools and No Boeing sooner or later equals declining sales at Amazon. 

So Bottom line, I am wary of this market, but Friday's rally was impressive. The Bull Bear chart says to be optimistic and I hate to "fight the tape", so if this week if things stay positive, I will need to shrug off my dire predictions. That said the FED is going to raise interest rates soon and the cloud of gloom over that is palatable in the air. But if this rally is real, with the only real good news being waiter jobs, it probably is leading to hell of a sell in may in 2016.  Be very careful out there.  


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