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June 17, 2017 – Weekend Market Comment

June 17, 2017 – The Dow Jones industrial average rose 24 points, or 0.11 percent, to close at 21,384.28, with Chevron leading advancers and Wal-Mart the biggest decliner. The S&P 500 rose 0.69 points, or 0.03 percent, to end at 2,433.15, with energy leading five sectors higher and consumer staples lagging. Note the high S&P 500 volume on Friday -- a byproduct of options expiration. The Nasdaq pulled back 13.74 points, or 0.22 percent, to close at 6,151.76. About four stocks advanced for every three decliners at the New York Stock Exchange.

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 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
New breakout up.

203 OBV
OBV (red line) is sort of with the market but weak.
207 VIX
Fear is way low. Beware the calm before the storm. BULLISH

209 VIX Evaluator

211 S&P500 over 50 day
Now about 71% of stocks are above their 50 day MA,  up a tad from last week when it was 68%. 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 fading. Pay attention -- could be volatile.
303 Aggressive Defensive
Near top? CAUTION

305 Consumer Bonds vs Equities
Consumer splat. Bonds perk

307 Bond Direction
Bonds UP! 
309 Sectors
Utilities rule.

311 Nations

313 Major sectors
Canada sucks -- again.

! = Pay attention this chart is important this week.

What I Find Interesting

Saying No to Bonds in China
This week China’s government-bond market is exhibiting a new sign of stress: The yield on longer-term debt has fallen below that on shorter-term debt. What that means is that investors refuse to buy long-term debt from the Chinese government without a whopping risk premium. Clearly they fear they will not get paid.

Swiss Banking giant UBS says the concern is: "media reports that the China Banking Regulatory Commission (CBRC) showed a soft tone in requirements for banks to reach standards." In short that says Chinese bank lending is at very dangerous levels -- but when the government tried to slow that down and it almost killed the economy. Once again the brakes are being taken off. The national banks toxic loans are getting even bigger and more dangerous. China has lost control.

We saw this before, the U.S. yield curve inverted in 2006 and 2007, well you know what followed back then. . . 

Your Pension is in an ETF

According to Forbes Exchange Traded Funds (ETF) are mostly owned by institutional investors. The so called "smart money" institutional holdings totaled 53% of the ETF-specific owners.

However they seldom play Inverse and leveraged ETFS, for that world is dominated by the "dumb money" known as retail investors or other non-reporting investors, going to extremes at 86% of 3x inverse and 91% of 3x leveraged ETFs. Hope you greedy day traders are paying attention here.

Adviser-Heavy ETFs: Of the top 20 ETFs held by investment advisers--including usual suspects SPDR S&P 500 (SPY), Vanguard MSCI Emerging Markets (VWO) and iShares iBoxx $ Investment Grade Corporates (LQD)--those most heavily favored by advisors approached or eclipsed 40% of ownership. These ETFs were iShares MSCI EAFE (EFA), iShares S&P MidCap 400 (IJH) and iShares Russell MidCap (IWR).

Broker-Heavy ETFs: Of the top 20 ETFs held by brokers, those most tipping the charts for brokers were iShares Russell 2000 (IWM) at 67.9%, Energy Select Sector SPDR (XLE) at 61.7%, iShares Dow Jones U.S. Real Estate (IYR) at 54.5%, and iShares Barclays 20+ Year Treasury Bond (TLT) at 52.3%.

Commodity Danger
I purchased a barbecue grill this week and it occurred to me that it was cheaper than the model I replaced now 16 years old. The cost of backyard grills is falling, because offshore labor is cheap and materials cost less. Commodities continue to fall, in fact the price of materials has decreased since the 2008 crash. Today they hit a new one year low!

Copper is often a clue where the economy is going, its price jumped on the Trump election, but has done nothing since. Copper is key component in house building but also factory production.

If houses sell well and copper stays flat you might assume trouble in manufacturing, but you would be wrong.   Here is the global manufacturers index (Ticker:EXI) strong since the Trump election.

Yet this week the fed hiked rates. One member of the fed disagrees, Minneapolis Fed president Neel Kashkari says in his blog, "for me, deciding whether to raise rates or hold steady came down to a tension between faith and data and he does not see the data.

As I have said many jobs being created are low pay service jobs. The only inflation forces are due to construction employment and first world home prices. Both edge upward, but in general global demand for everything else is very soft. The Home prices are based on speculation and the wages are due to the cost of housing and a boom in construction, based again on housing speculation. The U.S. home builder ETF (Ticker:XHB) is in a steady climb.

But if we look at the price of cargo-ship space, the Baltic Dry Index (Ticker:$BDI), it has gone sideways this year.

Housing starts and consumer sentiment are the latest data to disappoint investors and economists. Earlier this week, the Labor Department said the consumer price index — a key measure of inflation — fell 0.1 percent last month. Economists polled by Reuters expected a rise of 0.2 percent.

Despite my purchase of a new grill and a trip to Costco for steaks, I don't appear to have changed the national trend. The U.S. the Commerce Department said Wednesday that retail sales fell 0.3 percent in May, marking the largest one-month decline since January of last year. The sudden drop confounded economists, which had forecast a 0.1 percent gain.

What it means to me is the economy is moving ahead because it does not think there are problems, but there are. In the Bananas market the consumer is deep underwater for debt and has stopped shopping.

What Works Now
Shares of Omeros Corporation (NASDAQ:OMER) surged nearly 17% on Tuesday after the company announced that the U.S. Food and Drug Administration had granted its lead drug candidate breakthrough therapy designation. OMS721 is set to begin its second phase 3 trial later this year and is being evaluated as a potential treatment for Immunoglobulin A (IgA) nephropathy, a rare form of kidney disease.

DuPont Fabros
Data center real estate investment trust DuPont Fabros Technology (NYSE:DFT) announced early Friday morning that it would be merging with industry heavyweight Digital Realty Trust (NYSE:DLR).

China is toast? No worries India has lots of slave labor to serve the greedy capitalist machine, bhawaa-ha-ha.

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 U.S. market is bananas and I would not jump in front of that. Many big picture indicators  in our 100 series are very strong, with clear bull bear lines and very good breadth. 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. About three weeks ago I began looking for the market to consolidate or correct because of price being very overbought based upon its extreme departure from the 200EMA. So far, we have two weeks of price churning sideways, and that has gotten the technical indicators in a condition that promises more of the same, if not an outright short term correction.

However the very 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. Equities are very expensive and the Fed is deleveraging while raising rates. This is the third longest running bull market in my life time and is about to be come the second longest.  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. In the domestic market, besides mortgages there are too many car loans and extreme educational debt. Today there are 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. 

Happy Fathers Day

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