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March 6, 2016 – Weekend Market Comment

March 6, 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).

Confused? I bet -- so are some of the best experts. I can quote many famous market technicians who are asking what the heck is going on and I have heard lots of the bull and bear case. Keep in mind even in big bear markets there are strong up turns before final capitulation look at spring 2008:

CLICK HERE: To See the 100 and 200 series charts

101 Bull Bear
Bear market (red over dark green). The light green line has come a long way up, and the dark green line is beginning to turn up, perhaps the end of this sell off. Bear Market = Bearish outcomes.
103 NYSE High Low Market Forces
In the right side highlight we see green is above yellow. Breadth issues are drying up, the sell off may be over.

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 – 5 white bricks trend is heading up.
203 OBV
Pros are with the market volume jumps!

207 VIX
VIX is the fear gage .. below 17 is calming but still in the dangerous zone.

209 VIX Evaluator
Heading down clearly.

211 S&P500 over 50 day
Now 83% of stocks are above their 50day MA. However top window shows a MACD near 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 solid for NASDAQ don’t bet against strength here
303 Aggressive Defensive
Looks way overbought, expect market to fade in coming days. Be ready to go deeper short.

305 Consumer Bonds vs Equities
Consumer stumbles watch out. Bonds are fading.

307 Bond Direction
Bonds fall.

309 Sectors
Consumer is fading watch out.

311 Nations
Emerging markets return

313 Major sectors
Equities beat gold!

 ! = Pay attention this chart is important this week.

What I Find Interesting
This was an interesting article in the Vancouver Sun about a money laundering via real estate. This Vancouver home sold for $7.2 million to off shore Chinese investors.

What is happening is quite simple:

  •     Chinese investors smuggled out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
  •     They make "all cash" purchases, usually sight unseen, using lawyers, numbered companies, third parties intermediaries to preserve their anonymity, or directly in favored cities like Vancouver, New York, London or San Jose/San Francisco.
  •     The house becomes a new "Swiss bank account", providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.
  •     Then the owners disappear, never to be heard from or seen again.

What Works Now

Gold with the ticker:GLD ETF and ticker:DEF an ETF of stable defensive stocks. 


What I Think
Several people have been asking what happens next? Well of course no one knows with prefect certainty but I can show you some charts and some rules of thumb and you can see how I came to my guess.

Right off we know the problem, the bull bear lines are dark green over red, saying this is a bear market. Bear market means expect bearish outcomes. Now the light green short-term line says we are half way recovered, so that is an impressive rally. Our daily price even passed the 200 day moving average. That says not to be overly pessimistic, and to be at least part in cash and do not mess with leverage, its just too dangerous. This is a short squeeze, people are selling to cover and those can rip your face off. 

Moving on lets look at another big picture chart, this one is the really big picture PMO chart and what is says is for the first time in 7 years we have a real chance of a secular long term bear market. You must respect this, this is no time to try and scoop a bargain on a high flyer like buying FaceBook or Amazon. 

Next we have the Value Line Geometric Index chart one of the best long term gauges showing no sign of recovery yet. 

Our OBV chart was lagging but now volume is catching up so that says the smart money is covering. 

We also see by the percent of stocks over 50 chart has hit 80% and the MACD (top line) is in nose bleed territory. It says that this recovery may be unsustainable and that we are be overbought. 

Against this we have some short-term signs of a strong recovery. Here we see green and yellow have crossed on the NYSE over 52 week high low chart. That tells you this recovery is broad and you need to respect this. This could be the bottom of the sell-off. 

Another sign that there may be real trouble on the horizon is that Gold is selling well.

Against all of the above let’s look at some fundamentals. China continues to slow down, global shipping is in a major stall with more container ships at the dock than in any time in modern history. The only bright spot is U.S. employment but that is mostly growing in low paying service jobs. We have a mess in the Middle East with a belligerent and emboldened Russia supporting the Assad regime. U.S. corporate earnings are week and the PE ratio of the market is high.

So the result is that we are not clear what happens next. My answer started on Monday when my stops kicked in on my risky shorts and I went mostly to cash. Now if I were to pick a position it would be a bit short, I continue to hold MYY and I am hedging this with defensive long equities like Hormel ticker:HRL

BUT I am ready with my figure on the button to change my long short ratio. I am still a bear but if SPY can test and hold above 2030 I will need to say this is over for a while, I am convinced 2016 will be a major sell off and I expect it now or in May. 

For the investors on the simple plan just go to cash.  In uncertainty you do not need to participate.

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.