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January 30, 2016 – Weekend Market Comment

January 30, 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).

U.S. stocks closed more than 2 percent higher percent Friday, the last trading day of January, after the Bank of Japan unexpectedly adopted a negative interest rate policy for the first time. Encouraging earnings reports, a better-than-expected Chicago PMI report and some stabilization in oil prices also helped push equities higher.

The major averages still posted their worst January in at least seven years. On a monthly basis, the Nasdaq composite fell 7.86 percent for its worst month since May 2010. However, Friday's sharp gains pushed the three indexes into positive territory for the week.







101 Bull Bear
Bear market (red over dark green). The light green line is trying to turn around but a “dead cat bounce” would be expected in a market this negative.

103 NYSE High Low Market Forces
In the right side highlight we see green is below yellow. Still many breadth issues.

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator. 

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. Still no up brick even after a great day Friday.
 !
203 OBV
VERY IMPORTANT – That is strong institutional buying and should be respected. One day does not make a trend, so don’t panic yet but if this continues this strong it will be cause for revaluation of the health of this bear. .

207 VIX
VIX is the fear gage .. well 21 is fear but no longer all out panic.

209 VIX Evaluator
Rounding top… perhaps bear is not well.

211 S&P500 over 50 day
Now only 19.2% of stocks are above their 50day MA. As predicted a 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
Possible up turn.

303 Aggressive Defensive
Very defensive predicted possible end of bounce here.

305 Consumer Bonds vs Equities
Disturbing, the consumer is lagging. Bonds falling too.

307 Bond Direction
Faltering short term buying.
 !
309 Sectors
Consumer (ticker XLY) faceplant.

311 Nations
Canada surge and fail

313 Major sectors
Gold sells off global markets uptick!



 ! = Pay attention this chart is important this week.



What I Find Interesting
Thursday and Friday were strong up days in the market. The OBV chart says a lot of the buy side strength was from major players like Mutual Funds and Hedge Funds. Of course they went right for the big 8 FANG and NOSH stocks. However American stalwarts like the Ford Motor company experienced no buying at all. I am going to take that as a sign of money managers trying to catch falling knives.




Junk News
Junk Bonds are back in the News. You can read my writing on the dangers of high yield in:
The 2016 Credit Crisis Part 1: Junk Melt-down

and now a new warning from Goldman Sachs on Bloomberg

The majority of the new money can be classified as “tourists” aka renters, not owners. As a class, these tourists are unfamiliar with the risks and illiquidity and only familiar with a recent history of strong returns. Similar to the cracks that emerged in late 2007 in the mortgage market, cracks emerged over the past six months in levered credit.
 

And now a word on High Yield Debt from madam Chairwoman:

Ahem, Yes Janet and the Titanic offered a less than optimal passenger experience with a brisk interest in alternate flotation devices. :)




If you like things a tad more complicated you might also enjoy this well thought out article on Volatility and rebalanced portfolios. Click here: A Case for High Volatility Strategies 

First and foremost, oil is in a long-term downtrend and the current bounce is still considered a counter-trend move. The big victim is Russia that need oil to hold the economy together. With 13% inflation and no growth, The Economist says the Russian Economy continues in freefall.


What Works Now
Cash or start to buy short ETFs like MYY or be long U.S. Treasuries with the TLT ETF.




If you want to buy more short this might be your opportunity this week. 


What I Think
I think this is a bear market and in a bear market one must expect bearish outcomes. Bounces up are to be taken as buying opportunities to go short. 

Last week I made notes on the 303 Aggressive/Defensive chart:
 

Now here we are this week with an updated version of the same chart:

This tells me this dead cat bounce should last only a week, if it goes on longer it might be a true turning point.

Now if you will excuse me, I have made some rum punch and my hammock is calling . . .


 
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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CLICK HERE: To see the 100 and 200 series charts



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