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June 10, 2017 – Weekend Market Comment

June 10, 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 http://cme4pif.blogspot.ca/. For full details read my disclaimer (link at the bottom of this page).

The S&P 500 closed 0.1 percent lower, erasing earlier gains, with information technology dropping more than 2.5 percent. To be sure, tech has had a stellar year, rising about 20 percent in the period to lead all sectors. The Nasdaq composite hit a record high at the open before closing 1.8 percent lower. Shares of Apple, Facebook, Amazon, Netflix and Google-parent Alphabet all fell more than 3 percent. Despite the high, the tech-heavy index also posted its worst weekly performance of the year.

Here is what our charts say:






101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in an uptrend.  NOTICE THE SLOPE (second window), we might be starting another long ride up.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines are firmly up. BULLISH!!

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
Strong industrial production.  That is good news. BULLISH

115 Renko
Notice how overall we are going nowhere in the broad market.

203 OBV
OBV (red line) is with the market.
!
207 VIX
Fear is way low. Beware the calm before the storm. Is that an uptick I see?

209 VIX Evaluator
Sweet! BULLISH


211 S&P500 over 50 day
Now about 68% of stocks are above their 50 day MA,  up a lot from last week when it was 60%. BULLISH

213 Green Arrow
Only put new money to work when I draw a green arrow. Getting more aggressive.  Notice loss of TRIX momentum.


301 NASDAQ Summation
Nasdaq breadth is returning. Pay attention -- could be volatile.
!
303 Aggressive Defensive
Near top? BULLISH.

305 Consumer Bonds vs Equities
Consumer and bonds splat.

307 Bond Direction
Bonds UP! 
!
309 Sectors
Banking recovers tech is overbought.

311 Nations
Germany and Canada upturn. Asia looks overbought.

313 Major sectors
See above.

! = Pay attention this chart is important this week.


What I Find Interesting

Short Circuit
If anyone tells you markets are rational remind them of this:

Currently Tesla manufactures just two different models (with a third on the way). It looses money on every car it builds and its new low price tag model will be worse!

This week Tesla has just achieved a market capitalization that is larger than either Ford or General Motors. How is it possible that a profit black hole like Tesla has a valuation that exceeds these two Detroit behemoths? (Ticker:TSLA)



Oil Slick Slip
West Texas Crude slid hard this week to $45 as America is still drowning in oil from ever increasing supply -- as I predicted in the New Momentum back in 2013.
 

Of course that means big job losses in the Oil and Gas industry, these are just the USA numbers -- but of course it much worse in oil producing nations around the world:
 


Venezuela Death Spiral
No oil producer has been hit harder than highly socialist Venezuela. Society began to break down as annual inflation in Venezuela last year reached 274 percent, according to data the central bank provided to the International Monetary Fund, although many economists believe the true figure is far more alarming.


The Atlantic Magazine ran a feature on the "Mother of All Marches" as clashes broke out on Wednesday in the Venezuelan capital, Caracas, where hundreds of thousands of people held rival protests amid rising tensions over the country's political crisis. Two Venezuelan students and one police officer have died after being shot.


China Slow Down
The News from Bloomberg, the Financial Times, CNBC and Aljazeera are ripe with stories about how China's economy is slowing. The broadcasters blame international demand. In fact, as I predicted in the The China Problem, as the government tries to curb pollution while they build on a non-existent middle class, costs will rise and other countries will take business away from China.

Now to protect the banking system, the taps for credit are closing the last pillar of the economy, real estate speculation is slowing.


Just Say No to Chinese Bonds
According to the Financial Times China's bonds are not selling well and yields are rising, but still no buyers as the stink from risky loans and shadow banking grows. The problem according to Fortune magazine is that shadow banking is propping up the "mother of all global property bubbles" and without easy credit the whole mess could implode.

Chinese corporate and government bonds, whose outstanding amount is about 40 percent of such securities in the U.S., have already lost about 6 percent in the past half year. The declines were triggered by policy makers’ shift towards reining in financial leverage, and have been exacerbated by difficulties finding counter-parties to trade with.

The ferocity of China’s bond rout is surprising some of the market’s top observers. The risk for China’s economic planners is that no one shows up to their bond market party, amid fears over capital controls and default risk.

International fund managers acknowledge that Chinese onshore debt is bound to become a big part of global fixed-income portfolios, but these days it is said with added qualifiers such as “eventually” and “medium- to long-term”. Few, it seems, are foolish enough to go in first.


Auzy Bubbles
Yes I know you are all tired of reading my rants about the insane price of Canadian Real Estate and the huge debt burden in Canada. So how about watching Australia's version of 60min is expecting a bursting bubble in the land down-under. By the way an Australian dollar is about par with a Canadian dollar or 70 cent U.S.  Again the culprits are Asian buyers and poor control of the bank mortgages. See Video below:



A Bad Omen
Last week I was at the bank and a young couple arrived before me in a shinny black BMW with California plates.  I overheard this man talking with the teller about the four houses he was buying to rent out. Referring to himself a slum landlord.

Two days later a friend of mine and I were working on painting a boat hull together. He is a local realtor and told me that 100% of the homes on the MLS turn over in under a month now. He lamented he was not making money, because he had zero inventory to sell.

The next night while sailing I mentioned north of our 100,000 population town developers were planning a 170 lot development called Foothills. I was corrected by a friend who should know, he is a federal government employee who works in environmental impact work. He said Foothills is in fact a 700 lot development, the 170 lots I heard about are just the first phase.  They would build it all now, but the town can't provide that much water service.

This week I was in a supermarket that contains a banking kiosk for a major Bank. Two young employees in their early 20's were talking about how to pyramid condo purchases to build a real estate empire. The plan was to acquire a stable of house and condos over a ten year period, using leverage.

I engaged them in conversation and ask how long they lived here. I was informed they moved here from Vancouver a year ago and were trying to buy all the property they could in this small town because "it never goes down".  I told them I hear that a lot lately. I also mentioned that average home price in Vancouver now top 1.8 million and asked is that sustainable? To my surprise they brought up the famous story of how Jessy Livermore was quoted as saying "When the shoe shine boy is telling me to buy stocks, that’s when I sell everything I own immediately!". As for housing in B.C. Canada, perhaps right now that is very good advice.


What Works Now
Transportation
With Falling oil prices and a strong economy the transports are jumping back including airlines, FedEx and rails. Here are FedEx (Ticker:FDX) and Kansas City Rail (Ticker:KSU)





Hewlett Packard
Consider that every time Hewlett Packard has had a pull back in the last 12 months it was a buying opportunity. (Ticker:HPQ)


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 - Yet.

Right now the market is a freight train and I would not jump in front of that. Many indicators are very strong, with good breadth and recent run up in small caps, banks and transportation stocks. All signs of a strong market. The VIX is at a recent low as fear ebbs away in a sea of complacency. Thus my advice of never short a bull market.

That said, it is summer and the markets tend to move sideways until fall. A small sell off or more consolidation, would not be surprising.

Long term is more concerning, the VIX is at crazy low levels, often a sign of a turn in the markets in the coming months. I of course have real concerns that the Chinese have built a house of cards in the property markets both domestic and foreign.  Housing speculation is now the global obsession for people everywhere. With it there is record levels of debt in all economies. I fear in the next two years the bill will come due. But not just yet, for this week I say, party like it is 2006.


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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…