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October 08, 2016 – Weekend Market Comment


October 08, 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 is weak, and moving sideways, now the question is how does this end, is this a pause in an uptrend or the end of a trend?






101 Bull Bear
Bull market (dark green over red) right now the slope lines says it all, we are flat to slightly negative and going sideways.  Bull market -- expect bullish outcomes.

103 NYSE High Low Market Forces
Nothing but positive. In the right side highlight we see green is above is below yellow. Positive.

105 Non Farm Payroll
Lots of jobs! But beware this is lagging indicator. The smart money is gone before this turns down.

107 Industrial Production
Could be turning up again, if not expect rally to fail.

115 Renko
Well as you can see we are going sideways.

203 OBV
OBV is still with market, lagging just a tad so no conviction. 

207 VIX
VIX should bounce about this red line for a while. Notice the rising wedge developing.

209 VIX Evaluator
Again sideways.

211 S&P500 over 50 day
Now over 43% stocks are above their 50day MA, slightly down from last week 51%. Sideways.

213 Green Arrow
Only put new money to work when I draw a green arrow.
Red over green TRIX means no green arrow for awhile.

!
301 NASDAQ Summation
Notice how the NASDAQ was leading, but as this chart shows leading on weak breadth. Trouble is coming for aggressive tech stock if this does not shape up and soon.

303 Aggressive Defensive
Looks like MVV is outperforming DVY but in truth they are both falling

305 Consumer Bonds vs Equities
Bonds hit bottom, but consumer does not react. Could be a bit of fear returns.

307 Bond Direction
Weakness in bonds indicates overall market caution and expected rate hikes.

309 Sectors
Yes aggressive stock have been doing well but expect a bump up from Utilities and Defensive's

311 Nations
International rolling over?

313 Major sectors
Commodities are rebounding, gold unable to rally in face of strong market.

! = Pay attention this chart is important this week.


What I Find Interesting


The World is More Reactionary
One big risk in the world right now is protectionism. When fear runs decision making you get extreme reactions, it was how Hitler came to power in Germany and it is governing everything from ISIS, to BREXIT and to Donald Trump for President. As history teaches us, as the great depression began in 1929 things were not to bad, but then congress passed the Smoot-Hawley tariff of 1930. The great majority of economists then and ever since view the Act, and the ensuing retaliatory tariffs by America's trading partners, as responsible for reducing American exports and imports by more than half. According to Ben Bernanke, "Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”. Another global trade war now would be even more devastating.


Energy is Hot
Energy is moving up in price after a long wait, even Natural Gas is breaking out in price. (ticker:UNG)



Gold gets the Finger
Well the U.S. dollar has had two months of gaining and we all know gold is priced in U.S. dollars, so strong dollar equals weak gold. (ticker:GLD) I steered a few readers away from Gold this summer -- now you know why.


 


Libor a matter of Trust
The London Interbank rate grinds high in anticipation of higher rates and increasing concerns about systemic risk among Europe's banks.

 

Full Circle
I ran the numbers, if you put $1,000,000 in the  market in spring 2009 what would it grow to today. For the market I picked 3 different index ETFs to compare. DVY buys stock of big stable companies with dividends, RSP is a variant of the S&P 500 and represents a middle ground. MVV is a juiced ETF on the midcap 400 and of course is much more prone to swings in value. 


Oddly the results are pretty similar, about 2.5 times your money.

DVY (safe) $2,529,680
RSP (average) $2,765,745

MVV (volatile) $2,281,464





The market is suppose to reward risk takers, but over the long haul it does not matter much.



What Works Now

Brazil's economy still may be troubled, but Morgan Stanley upgraded Gerdau (GGB) on prospects for improved domestic steel demand. The U.S.-traded shares of Gerdau, which produces steel products and/or related commodities in Latin America, India and North America -- were up nearly 4% to $3.17 in recent trading. (Ticker:GGB)


Trinity Industries a diversified industrial conglomerate has businesses in the railcar leasing, inland barge, energy equipment, and construction industries. Now 433 on the fortune 500 list. As energy, transportation and rails improve so does the railcar leasing business. (Ticker:TRN)





What I Think

I think trees don't grow to the sky. Here we are in on of the longest bull markets in history, to boot, we are well in to a year that is up about 15% when 9% is typical and we are entering the month of October. October is a great month for stocks two out of three years, but when October sucks it really sucks. Most of the greatest crashes happened in October, so traders are skittish. Especially heading up to October 20.
There really is not much scary news out there. Perhaps Deutsche bank is a danger (details posted last week), perhaps the global slowdown returns with no way to fight it, but for now no problem is on the immediate horizon.

So what do the charts tell me:

1. Chart 001 Bull Bear lines. This is a bull market and in the end if we pull back this is a buying opportunity.

2. Chart 003 NYSE High Low. This chart says have faith!

3. Chart 203 50 day OBV says pros are only half playing.

4. Chart 213 Green Arrow - worry that the TRIX is dropping. 5. Chart 301 NASDAQ summation. VERY concerning, this indicator sees way in to the future, but it says please pull in your horns.


I expect weakness the next 2 weeks and then bargain hunting.







You can learn more about my indicators by visiting the CME4PIF school by clicking here.

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Yet another parabolic up week for the markets. Honestly folks valuations are really stretched here. The air is so thin at this altitude. Then again the markets can and do (on a short term basis) anything they want. Still I would expect a little pull-back in the next two weeks.


Lets see what is in the charts this week:

CLICK HERE: To see the 100 and 200 series charts



101 Bull Bear Bull market (dark green over red) and now the short term (light green) is up sharply. Also note the dark green 50 day average is in a firm uptrend. NOTICE THE SLOPE (second window), this could be part of a new long term uptrend.Bull market -- expect bullish outcomes…