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October 29, 2016 – Weekend Market Comment

October 29, 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).

What is the problem? Well the markets are generally not happy right now and when you see the charts you will see why. The Equal-Weight S&P 500 ETF (RSP) is down around 1% since mid July and has gone nowhere the last three months. Many key sectors are also looking very weak.

Lets see what is in the chart this week:





101 Bull Bear
Bull market (dark green over red) and now the short term (light green) is down sharply. Also note the dark green 50 day average has begun to fall off. NOTICE THE SLOPE (second window), this could be part of a long term down trend.  Bull market -- expect bullish outcomes.

103 NYSE High Low Market Forces
Nothing but strength. Bullish. Our last hope...

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
Market is breaking down new black bricks! BEARISH!
!
203 OBV
OBV (red line) is below the market. DANGEROUS.

207 VIX
VIX fear is up, looks like it has maxed out and might retreat from here, mean revision generally rules, until it doesn’t. . Rising VIX is bearish!

209 VIX Evaluator
Sideways to down still. Neutral

211 S&P500 over 50 day
Now 33% stocks are above their 50day MA, slight move down from last week when it was 35%. Neutral.
!
213 Green Arrow
Only put new money to work when I draw a green arrow. TRIX says no way we draw a green arrow here. VERY Bearish!

!
301 NASDAQ Summation
Notice how the NASDAQ was leading, but as this chart shows now falling apart on weak breadth. Trouble was coming for aggressive tech stock and looks like it is here.
!
303 Aggressive Defensive
Very defensive, but as an optimist you might say the worst might be over?
!
305 Consumer Bonds vs Equities
Bonds SUCK. Consumer SUCKS a bit. Ewww Bearish

307 Bond Direction
Weakness in bonds indicates overall market caution of coming rate hikes.

309 Sectors
Defensives rise! Tech falls off, we saw this coming!

311 Nations
Oh Canada, look at you go with a new interest in gold mines. Third world sucks, good bye Philippians!

313 Major sectors
Canada looks good. Commodities look brighter.

! = Pay attention this chart is important this week.


What I Find Interesting
So each week we come here and we see the charts go up and down and we look on a small scale at what is happening. But of course the big money is the big trends, bubbles inflating and bubbles bursting. In 2007 I predicted the housing crisis. In my thoughts blog I predicted the end of the commodity bubble, the end of the gold cycle and the super boom now underway in America I called the new momentum. I saw the parity for the Canadian dollar ending in 2012. Bubbles are fairly easy to see if you know what to look for. I look for something that is a big deal and is changing everything from the way it was and sit back and listen as people tell you this bubble is different, this will never end. I saw it in Japan in the 80's and I saw it in Alberta a few years ago in the Oil boom.


Unfortunately seeing a bubble too soon can be a problem too, there were men trying to short the U.S. housing market in 2006 and that must have been hard. Jessy Livermore called this "seeing the market through a telescope". I have been predicting a catastrophic economic disaster in China since 2007, I also was very confident that 2015 was the start of the sell off -- it was not. But one of these days . . .

Still the bubble in China will pop, and when it does it will be the disaster and possibly an opportunity of lifetime. I have finally had the time to write the whole idea what will happen in my CME4PIF Thoughts blog,  and I urge you to read this comprehensive work. Especially the paragraph in red the talks of the 83 billionaires in the National Peoples Congress, the flight of cash out of China and the 40 min BBC video called "How China Fooled the World". The forces at work here are truly monumental. This will be as big as the American great depression, The French revolution or 9/11. This is a game changer and it will come in your lifetime. 
Click here to read The China Problem


Bitcoin Explodes upward
Bitcoin has jumped 10% in value this week, I believe in large part because of frantic attempts by the Chinese government to stem capital outflows. No I did no say to jump in this is a very violent investment and could drop 10% next week, bu it sure is interesting.




What Works Now

CA$H baby!! take some profits!!

 

What I Think
I think the market is not happy about a rate hike in December,  a global slowdown in trade, BRIEXIT and generally the Chinese up their designer hand bags in debt at 3:1 their GDP. 


I think the Bull Bear lines are still calling this a bull market, but if you study the Bull Bear lines lesson one in the CME4PIF school, you know that Bull Markets can still be a bad time to jump in. Believe me when the 50 slope line crosses negative in the Bull Bear chart start getting nervous. The 50 day slope is the lower window.  Look at the vertical red lines, these are points the market fell apart, when the 50 day slope went negative.
 
Yes technically it is a bull market and the mean-reversion guys are ready with fingers on the buy button as we are oversold. Sure you must be ready to take off your bear hat in a hurry here, but caution is warranted. 

Particularly concerning is the timing of all this, this is just about when the market should be catching fire as we enter the most profitable part of the trading year. 


In short you must really pay attention at times like this. Buying opportunity or sell-off this is where we find out.

What I see right now is breakouts are failing. Stocks are losing upward momentum, and the S&P 500 indices make it seem as if everything is fine and dandy.  We are in fact seeing really disturbing charts on everything except Gold and Banks. Even Gold is only Luke-warm and banks are typically the last sector to do well in the economic cycle. 

Lets see some sector ETFs

Well the engine of the U.S. economy is housing. . .Kaput! (Ticker:ITB)
 
The safe haven that would have saved your butt in the 2008 meltdown safe stable 30 year U.S. treasuries,  now looking pathetic as Janet Yellen plans to hike rates in December. If we switch asset classes (stocks and bonds), we see an odd thing about this new low in stocks. Jumping to the bond market, we see that yields, specifically the 10-year Treasury yield, are hitting 5-month highs. Now, as bond prices move opposite yields, it strikes us as odd that bonds would also be hitting multi-month lows along with stocks. In recent years, bonds have been a reliable haven in the midst of stock weakness. To see both assets at new lows is certainly a change of character for the market.  Global bond yields have started to rise (pushing bond prices sharply lower). Notice commodity prices have risen more than 20% since February. That's potentially inflationary. 

Treasury yields were on the rise as the 10 year treasury yield ($TNX) broke above 1.80% to continue its recent uptrend.  Selling in treasuries sent the yield higher and also provided a boost for certain interest-rate sensitive areas of the market like banks ($DJUSBK) and life insurance ($DJUSIL).  (Ticker:TLT)

MVV 2X juiced etf based on the midcap 400, small stocks are being abandoned. This ETF is the ultimate risk on play. (Ticker:MVV)

This ETF -- DVY is the ultimate risk off play. DVY is the largest most stable firms.  (Ticker:DVY)
 
The heart of the U.S. economy and the first area to recover in 2009 the American consumer, god bless their charge card debt filled lives. But alas it looks like a slim Christmas in 2016 as shoppers stay away.
(Ticker:XLY)

Looking lately just a little happier, that last hope in a disaster GOLD. (Ticker:GLD)
  
That leaves our one bright spot, regional U.S. banks and insurance firms will benefit from a rate hike. (Ticker:KRE)


Some tech internet is doing OK, but if you look at chart 301 the NASDAQ summation index you can see it is on an ever decreasing breadth. If you don't know why that's bad, don't worry, just know it is very bad news, expect trouble in tech soon. Although the same chart when looking at the bigger stock of the New York exchange looks better than this, the NASDAQ leads, and I expect this to be a warning shot for the whole market unless some big changes happen soon.



The election has been hanging over the market the last few months and we are into the final stretch. Earnings season is in swing and will wind down in early November. Clarity will not last long because the Fed is on hold and could make a move in early December. Thus, some of the air will clear in the next two weeks, but attention will then turn to the Fed - and likely to the new administration.

But for now, when Risk On  (Ticker:MVV) and Risk Off (DVY) and faith in the US government (Ticker:TLT) all are in a down trend. When the consumer is not powerful (Ticker:XLY) and no one wants a home (Ticker:ITB), I would not go sticking my neck out!!  

It is still a Bull Market. The broader market could come out of its funk when we see a more uniform performance from the sectors and industry groups. Upside breakouts in the Retail SPDR (XRT) and Metals & Mining SPDR (XME) would tilt the balance to the bulls.
 

Don't be a total bear, but play defensively. As I said in What Works Now, this is a great time to go to take some profits!







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


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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…

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