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January 23, 2016 – Weekend Market Comment

January 23, 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 http://cme4pif.blogspot.ca/.  For full details read my disclaimer (link at the bottom of this page).

Welcome to the Bull Trap. We had quiet a bounce this week as the bulls think now is the time to party like last summer, but in fact it is very likely a trap. I will explain in the What I Think section below. Here is the daily chart of the S&P 500 for the last few days.

 






101 Bull Bear
Bear market (red over dark green) and it is nasty… expect to sell the blips.

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. Red is above price -- expect a rally. If red line fails to keep up - watch out below.

207 VIX
VIX is the fear gauge .. well 22 is high reflecting the current bear market, but it is getting better.

209 VIX Evaluator
Clearly trouble

211 S&P500 over 50 day
Now only 17.8% of stocks are above their 50day MA. 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 short bounce now.

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

307 Bond Direction
Short term buying.

309 Sectors
Small uptick in NASDAQ.

311 Nations
Some Canadian buying based on gold and oil possible commodity bottom?

313 Major sectors
Some selling for Gold and Bonds from the full out panic!








 ! = Pay attention this chart is important this week.



What I Find Interesting

Two days after taking control of the world’s most powerful political party in November 2012, Xi Jinping (shown here with a glass of fine chardonnay) warned his fellow Chinese Communist Party members that their six decades of rule was in jeopardy because of what he saw as endemic corruption eating away at the party’s authority and effectiveness. Within a month, a deputy party secretary in Sichuan Province, Li Chuncheng, became the first senior official to fall under Mr. Xi’s anti-corruption campaign. Many other officials followed over the next three years, both “tigers” (senior officials) and “flies” (lower-ranking cadres).

The Chinafile this week web site this week had a very interesting interactive chart called catching tigers and files, graphically showing the some 1,500 officials in China who have been recently arrested for corruption. The lucky ones got 10 plus year prison sentences, over 50 officials got life sentences, and more than 12 will be put to death. 


Some Basics
One of my readers was asking why you can tell if there are problems in the market by comparing the two versions of the S&P500 ETF the Cap weighted and the Equal Weighted versions. Well first click here to understand the terms

I have always been a fan of equal-weighted indexes as opposed to capitalization-weighted indexes because equal-weighted indexes generally give us more bang for the buck. The reason is that cap-weighted indexes weight the constituents based upon their market capitalization; whereas, equal-weighted indexes give each constituent an equal weight in the index. For example, the S&P 500's fifty-nine largest stocks (12% of the 500 stocks) compose 50% of the total market capitalization of the index, so those top fifty-nine stocks will have an inordinate influence on the daily percentage change of the index. With an equal-weighted index, such as the Guggenheim S&P 500 Equal Weighted ETF (RSP), each component is held in equal dollar amounts (rebalanced quarterly), and, of course, each stock will have an equal influence on the daily change of the index. This means that the smaller-cap stocks, which often perform better in healthy markets, than the large-cap stocks, can improve the performance of the index.

Now lets see it as a market timing tool. I have plotted a line that rises when the Equal Weight ETF (ticker RSP) does well and falls when the Cap weighted ETF (ticker SPY) does better. I drew pick zones during market weakness. As you see the market gets in to trouble when Cap weighted (SPY) out does equal weight RSP.

I hope that helps you understand that we are in a bear market right now, because since the spring of 2015  the broad market has been ignored and all the action has been on a few major players.  





What Works Now
 

 Cash baby . . .




What I Think

I think this is a bull trap. We are in a bear market and in a bear market I expect bearish out comes. I think the chart you want to watch this week is the Aggressive/Defensive chart. 




The market expect a sell off to end like it did last summer, (see green arrow on bottom of chart) when we rallied in to the fall season. However I am more expecting a Bull Trap with a brief run up and fail. See red arrows top of page.

However even if I am wrong, we will simply run up to a double top and sell off going in to MAY. 

But I don't think I am wrong, China is slowing down and so is the world economy. American manufacturing is reporting weak PMI numbers and many major retailers are going to be cutting more than Christmas staff after a very weak holiday season. U.S. retailers saw a 0.1 per cent decline in sales in December from the prior month, while a measure of sales that strips out car and petrol sales and building materials unexpectedly fell 0.3 per cent, according to the Department of Commerce. Total sales were up 2.1 per cent in 2015, the slowest pace of growth since 2009. Macy's cut about 3% of its staff loosing up to 4,800 staff and has slashed its profit outlook after a miserable holiday season. It also closed some 50 stores.
So what I did was take some of my leveraged shorts off and have a bit more in cash but I am still about 65% short.


 

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.



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Lets see what is in the charts this week:

CLICK HERE: To see the 100 and 200 series charts



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