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February 20, 2016 – Weekend Market Comment

February 20, 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).

The keys to the sustainability of the recent rally will be twofold:  (1) will there be enough buying pressure to clear key resistance levels as they're approached and tested? and (2) will there be enough rotation to aggressive areas of the market to confirm breakout attempts? I stick with my original idea that this is a dead cat bounce. Bear markets expect bearish outcomes.

101 Bull Bear
Bear market (red over dark green). The light green line is rounding signalling the top of a “dead cat bounce”. Bear Market = Bearish outcomes.

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 Jan.

115 Renko
Obviously – 8 Black down bricks the trend is heading down, fast.
203 OBV
Sharp OBV drop Friday, a sign that the pros are fading the market.

207 VIX
VIX is the fear gauge .. near 20soon

209 VIX Evaluator
Heading up again fear returns.

211 S&P500 over 50 day
Now 44% of stocks are above their 50day MA. looks like a top.

213 Green Arrow
Only put new money to work when I draw a green arrow.
I have added a new rule to eliminate too many arrows, now I do not draw arrows if the TRIX is red over green.
No sign of a green arrow..

301 NASDAQ Summation
Looks bullish for now.
303 Aggressive Defensive
Looks way overbought, expect dead cat bounce to die here.

305 Consumer Bonds vs Equities
Disturbing, the consumer is lagging. Bonds are the safe haven trade.

307 Bond Direction
Bonds are the safe haven trade.

309 Sectors
Only defensive areas outperforming S&P500.

311 Nations
Canada surge on gold

313 Major sectors
Gold strong uptick!

  ! = Pay attention this chart is important this week.

What I Find Interesting
Recent Lipper Analytics fund flow data shows in the latest week, there was $12.2 billion in equity outflows, from equity funds the largest weekly redemption in 5 months also gold (suggested here months ago) had record 2-week inflow ($3.2bn) since May’10, which according to BofA is a "hedge against “risk-off” & “dollar-off”

Housing Money Laundry
More in the Canadian press about crazy Vancouver real estate deals as dirty money flees from China.

What Works Now


What I Think
Nowadays the charts shows a market alarmingly similar to 1987, 2000, and 2008. The market’s engine is stalling. Each of these bear-market years resulted in declines in excess of 35%. The severity of the decline is indeed a concern, but more importantly is the time it takes from the highs to the lows. 

Several classic signs of a bear already are here:

• Daily volatility has spiked. “This is a war between the bulls and the bears ... and so far the bulls are losing.”

• Margin debt peaked last spring and has been falling ever since. “Past peaks in margin debt have coincided with, or led, peaks in the stock market.”

• Many stocks already are in bear markets. Over 60% of the stocks in the S&P 500 Index are down 20% or more from their highs, and so are the small-cap Russell 2000 Index and Dow Jones Transportation Average. Bear markets in the Russell and Dow Transports haven’t preceded bear markets in the broader indexes “only three times in the past 35 years.”

Global trade sucks, Baltic Index is at record low meaning container ships are at the dock with no cargo to move.  
The market was fairly quiet Friday and as a result, overhead resistance held as a new price top was formed. A look at the charts, however, and we are reminded that this rally is likely dying on the vine. I put some more money at risk by shorting the NASDAQ (QID) This is a very volatile ETF and you can not use it for long term plays, if you are risk adverse use cash instead.

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Don't squint, All graphics can be enlarged by click on them.