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May 21, 2016 - Weekend Market Comment

May 21, 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).


The market appears mid way in an in progress sell off as the charts form a classic head-and-shoulders pattern.


Despite an early morning rally on Friday, the overall tone of the market is glum. With the S&P breaking key technical levels, only Dow Transports remains in the green (up less than 1%) for the year now as Fed speakers pile on the hawkish tone.






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101 Bull Bear
Bull market (Dark Green over red). That said the short term light green line is heading down. Notice the topping pattern in the second window showing loss of momentum in the 50 day slope. Bull Market = Bullish outcomes.
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103 NYSE High Low Market Forces
Loss of conviction began this week with a tiny bit of red showing in the lower window, but more importantly the upper part of the graph looks weak and ready to roll over.  

105 Non Farm Payroll
Lots of jobs! But this is a lagging indicator. 
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107 Industrial Production
Not good. Watch this carefully, all recessions have falling industrial production, This data is from the end of April. Notice a clear round top in the 12 period moving average. This is the sign of a recession looming.
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115 Renko
New black brick, the trend could be broken.

203 OBV
OBV leads market. Pros are still with this market – Caution could signal a upward pull back from this sell off.

207 VIX
VIX is the fear gauge ... 15.05 -- This turn could be short lived but the pros are buying insurance that is for sure!
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209 VIX Evaluator
Last weeks tiny tick upward, is gone. Still looks positive.

211 S&P500 over 50 day
Last week 60% degrading this week now 42.8% of stocks are above their 50day MA. This has been sliding lower since March 20th. Slow loss of momentum.

213 Green Arrow
Only put new money to work when I draw a green arrow.
ALERT! Notice the slope is loosing momentum.
TRIX is green over red, expect positive outcomes.
No sign of a green arrow..

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301 NASDAQ Summation
Nasdaq is weak.

303 Aggressive Defensive
Finally a topping a roll over, end of the strong up trend? Clearly more defensive.

305 Consumer Bonds vs Equities
Consumer up a bit. Bonds shooting ups . Bonds have done very well this week. Risk off -- fear on.

307 Bond Direction
Short-term bonds rise in a rounding top to the long term up trend.

309 Sectors
Notice technology is ready to bounce up.

311 Nations
Commodities bounce back and Canada rebounds on good news at oil sands fire.

313 Major sectors
Some recent signs of life in commodities.

  ! = Pay attention this chart is important this week.

What I Find Interesting
The head and shoulders pattern is generally regarded as a reversal pattern and it is most often seen in up-trends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.) Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.) Tentative buying re-emerges and the market rallies once more, but fails to take out the previous high. (This last top is considered the right shoulder.) Buying dries up and the market tests the downside yet again. Here is a long term look at the S & P 500, notice we had a head and shoulders in 2008.





What Works Now
Oil looks to be recovering a bit. I find this odd with the US oil reserves full, and Reuters saying many container ships full of oil are being parked near Singapore. There is some concern of a shutdown in the Canadian Oil Sands due to a forest fire. But that too looks under control.




Commodities?
Many people are waiting for the return of rising commodity prices. I am not a big fan of this, but there is a definite upturn of late. If you read what I wrote in 2013 -- pop goes the commodity bubble, you know I feel the post 2001 run up in commodity prices was mostly big funds allowed to trade in the space after regulatory changes. I see no catalyst for a commodity run now.


The CRB index (ticker: $CRB) index comprises 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.





What I Think
The market is disintegrating at a steady pace. Industrial production is better this month than last, but probably will fall off again and perhaps trigger the next down leg. Don't bet the farm on a big short position here, when I look at the oscillators I have no trouble imagining a dead cat bounce here, but I am not in love with this market, advancing on low volume. The NASDAQ looks oversold and thus should bounce, but I think it will all be short lived if it happens at all. This is May and now 7 years in a bull market.




 

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