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January 16, 2016 – Weekend Market Comment

January 16, 2016 – 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. You can read the latest version each week by bookmarking
For full details read my disclaimer (link at the bottom of this page).

Well the sell-off we have been planning for since July 2015 is upon us. Now the next question is, "how much/long"? Well the answer is, quite a lot and I will explain. I urge you scroll down to read What I Find Interesting including the two links and the What I Think Section if you want to understand and profit from the coming economic depression. 2016 will be a mess.

101 Bull Bear
Bear market (red over dark green) and it is nasty… good thing you were warned.
103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow this is the number on reason I was so skeptical of this market, once again market breadth was the clue to run. 

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator and I think once we look beyond Christmas rush jobs expect to see this fall apart. 

107 Industrial Production
Not good. Watch this carefully, all recessions have falling industrial production, but data is from the end of Dec.

115 Renko
Obviously -- Six black down bricks the trend is broken and heading down, fast.

203 OBV
The pros are still in as the market falls. Could still be a dead cat bounce.  If red line fails to keep up - watch out below.

207 VIX
VIX is the fear gage .. well 27 is numbers like we saw in 2008…that is not fear that is all out panic.

209 VIX Evaluator
Clearly trouble

211 S&P500 over 50 day
Now only 11% of stocks are above their 50day MA. Total despair but perhaps over done … dead cat bounce next week?. 

213 Green Arrow
Only put new money to work when I draw a green arrow.
Nasty only buy short in this market.

301 NASDAQ Summation
Nasdaq full panic.

303 Aggressive Defensive
Very defensive possible bounce in a week or two.

305 Consumer Bonds vs Equities
Disturbing, the consumer is lagging. Bonds are in an huge uptick.

307 Bond Direction
Short term buying.

309 Sectors
Nothing here but panic.

311 Nations
Global sell off
313 Major sectors
Gold and Bonds full out panic!

 ! = Pay attention this chart is important this week.

What I Find Interesting

If you want to understand the core of the up coming recession you need to read this weeks Economist article: The Yuan and the Markets. As a trillion dollars has fled China depleting its capital reserves. Conservatives claim that China's total debt is about 2.5X GDP -- putting it in line with Greece -- but there are credible fears it could be 5 times that making it the biggest debt in human history.  It is going to be ugly when the masses find out corrupt officials took that money and hid it in overseas real estate, leaving the country the bill. How bad is it? ... would you dare to imagine a nuclear superpower with a 1 billion people in civil war?

In case you missed it, as I said before, to understand the scale of the problem, the 1 hour BBC documentary "How China Fooled the World" is must see viewing.

What Works Now
Short anything: 
Midcap 400 = ticker:MYY 
Dow = ticker:DOG
S&P500 = ticker:SH

or long treasuries and gold

What I Think

I spend my winters on a small island in the Caribbean. Two days ago, one of my good friends named Ben asked how he could profit form the sell off, and was it too late to be short. The answer the first question is above in the The What Works Now area. The second question is a struggle, I said that there were two forces at work, a junk bond crash (detailed in my blog) and the longer term danger of China's madcap borrowing to build empty skyscrapers and factories that sell below cost. If it is only junk bonds the pull back will be the typical 30%, if China is the cause, it will be way worse. Well the Economist article above convinced me... it is China. Ominous. For those of you that are still long and say they want me to be direct and to the point well ... try this:

As for how bad and how long, you can answer yourself by looking at this graph of the 5000 stocks the make up the U.S. market.  This is the monthly version of the Wiltshire 5000 going back some 20 years and yes if China blows up it could go to 6000. Click on it to enlarge it and study it, this is the key to the major market trends and as you will see the trend is down. Notice how rare red bars are like we have now. Notice volatility by how high the green ATR line is. 

So Ben and all my readers, the answer to the question is; no it is not to late to short this market. Conservative investors raise cash all others sell short using the ETFs above. 

On the bright side: I have been short for months, in this country a very generous rum punch is $1.50 (from 3pm to 6pm) and this is the amazing view from this island. . .

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.