Skip to main content

April 22, 2017 – Weekend Market Comment

April 22, 2017 – 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).

Wednesday's rally was quite bullish with leadership coming from the small cap Russell 2000 ($RUT, +1.24%), financials (XLF, +1.69%) and industrials (XLI, +1.21%).  All three of those led the huge rally back in November and December - on an absolute and relative basis - so continuation of that earlier relative strength would bode well for U.S. equities.

There was no follow through on Friday due to, I believe, it being options expiration day, which tends to dampen volatility and keep prices steady. The direction is basically sideways.  U.S. stocks held mostly lower in choppy trade Friday as investors looked ahead to the French election. Wall Street also digested falling oil prices and comments from the Trump administration on tax reform. The Dow Jones industrial average hovered around the flatline with IBM contributing the most losses and United Technologies the most gains. The index briefly turned positive in afternoon trade after President Donald Trump told The Associated Press his administration will unveil a "massive tax cut" in a new reform, though the timing of that package was unclear. The S&P 500 declined 0.3 percent, with telecommunications falling more than 1 percent to lead decliners. Energy was also among the decliners, falling more than half a percent as U.S. crude dropped 2.15 percent to settle at $49.62 per barrel. The Nasdaq composite traded 0.2 percent lower.

Here is what our charts say:

101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a flattening uptrend.  NOTICE THE SLOPE (second window), we might be starting another long ride down.  Bull market -- expect bullish outcomes.
103 NYSE High Low Market Forces
Breadth lines are firmly up. Also notice the second window red patches recently. We had many patches like this after mid 2007. This is the sign the market is running out of steam. 

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
Flat but strong industrial production.  That is good news.

115 Renko
Sideways consolidation CAUTION.

203 OBV
OBV (red line) is below the market.  If this gets any worse, worry.

207 VIX
Spike in fear and a one day retreat
209 VIX Evaluator
Don't panic yet but that is an up tick ... hmmm.

211 S&P500 over 50 day
Now about 57% of stocks are above their 50 day MA,  up a lot from last week when it was 43%.
213 Green Arrow
Only put new money to work when I draw a green arrow. Notice loss of TRIX momentum. CAUTION

301 NASDAQ Summation
Nasdaq breadth is returning. Pay attention -- could be volatile.

303 Aggressive Defensive

305 Consumer Bonds vs Equities
Bonds woosh! up up up. Consumer flat. CAUTION

307 Bond Direction
Bonds UP! 

309 Sectors
Everything is doing well but banking. Bazaar.

311 Nations
Germany kaput! 

313 Major sectors
Commodities fall

! = Pay attention this chart is important this week.

What I Find Interesting

The Way We Hire
Economists estimate that non-standard employment (gig work, temp work, contractors) accounted for a around 10% of American workers between 1995 and 2005, but grew to some 16% of American employment in 2015. Much of the increase is attributable to “workers provided by contract firms.” Firms of all sizes are increasingly outsourcing non-core functions. Many firms have used outside accountants or janitorial firms for decades, but thanks to gig websits like fiverr and Upwork, areas like website design, voice over announcements, copy writing, editing, graphic design and even marketing plans are done by starving beginners, and offshore vendors for a fraction of the local price. The Gigs section of Craigslist allows for quick jobs like moving or landscaping to be filled by underemployed locals. I know a woman from Huston who lives on a Caribbean Island entirely on correcting term papers for students.

Although work is going to India virtually, immigrant workers are another matter. President Trump’s “Buy American, Hire American” directive will force Indian IT firms—the top sponsors of visas from India—to rethink their recruitment models. Industry bigwigs like Infosys, Tata Consultancy Services (TCS), and Wipro, have been prepping for these restrictive measures for nearly a decade now with the knowledge that ramping up local hiring amidst America’s chronic skills shortage could prove to be a challenge.

Indian workers, who hold nearly 60% of the skilled foreign worker visas in the UK, faced similar woes as the country raised the salary threshold for different visas and added new English language requirements. Under the new rules, Tier 2 short-term intra-company transfers—the provision under which Indian tech companies typically take their workers to the UK—would be discontinued. This change went into effect on April 6. Although British Chancellor Phillip Hammond assured India that efforts to shrink migration of less-skilled labour would not impact India adversely, that did not hold true. At least 30,000 Indian software professionals currently working in the UK will not have their work permits renewed. 

New measures are also closing the door to Indian high tech workers in Singapore, Australia and New Zealand. Australia completely abolished its 457 immigrant worker permit. 

However more forward thinking countries like  Canada are embracing high skilled immigrants and "exporting" outsourcing contracts from the United States and Britain. The effect is an regulatory enforced "Brain Drain" with the benefits going to the more open minded players. 

Share Buy Backs

If you want to worry about something, look at rising interest rates in the U.S. mean fewer companies will be able to borrow money to pay dividends and buy back shares. About 30 percent of the jump in the S&P 500 between the third quarter of 2009 and the end of last year was fueled by buybacks, according to data compiled by Bloomberg. The chart below shows the declining net income (green bars), the almost flat share-buybacks (bars in blue), and the rising buyback-to-income ratio (red line, right scale). Note what happened last time income began to decline (2007) and share buybacks followed in 2008: the stock market crashed.

What Happened 17 Years Ago?
A few days ago Charles Schwab, the investment brokerage firm, announced that the number of new brokerage accounts soared 44% during the first quarter of 2017 -- a new 17 year record.  But wait a moment -- was that not the crash of 1999 and the top of the tech bubble ? So in other words, this is the same crowd that got in at the end of the last bubble just as "the music stoped".

PIZ Me Off

The PowerShares DWA Developed Markets Momentum  ETF (orange line below) (Ticker:PIZ) includes approximately 100 companies from the NASDAQ Developed Markets Ex United States Index that possess powerful relative strength characteristics and are domiciled in developed markets including mostly; Australia, Canada, Finland, France, Germany, Hong Kong, Italy, Japan, Norway, Portugal, Singapore, Spain and Switzerland. These are non U.S. firms that are doing well. As you can see for the last few years the American centred broad based S&P500 (Green line below) has out performed the worlds leading momentum stocks. Due to TINA type investing big money is poring blindly into US markets, but clearly the rest of the world is neglected. Sooner or later this is unsustainable. Either because the big U.S. firms have no global market or because the securities are over priced. 

The reson I am interested in PIZ is that a quant friend of mine is testing a new trading strategy and this ETF is rising on his list of ETF with strong upward correction presure. So I think it is intersting to see what it does. 

What Works Now
CRH Medical

First mentioned here in late 2015 the stock is up over 200%. 

Fancy Resorts
Wyndam Worldwide Corp (Ticker:WYN)

What I Think

I think we are in a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009), and neither show signs of abating.  I wouldn't bet against the bull here I think we are setting upfor a pop.

The market's path of least resistance remains flat in the short- to -medium time frame, and higher in the long-term time frame. The intermediate-term is teetering on edge, and the trading next week will be important to see which side it comes down.

It is positive to see small-caps and the consumer discretionary sector leading the market. In fact, this week provided good signs that the market correction should be ending. It has not been much of a correction because the major index ETFs area essentially range bound over the last five weeks or so. 

As I have been saying for weeks, this is a bull market, expect bullish outcomes. However the question is when? U.S. shares should turn up now or basically stand still until August or September, in part because of flagging confidence in the so-called Trump reflation trade.

Coming Home
Well this is my last post from the warm Caribbean Sea, time to return to Canada, this time via Westjet, nice to see Canadian Airlines this far south.

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.

Read My Disclaimer Here