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July 08, 2017 – Weekend Market Comment

July 8, 2017 – The Dow Jones industrial average rose 94.30 points to close at 21,414.34, with McDonald's contributing the most gains. The 30-stock index briefly traded more than 100 points higher. The S&P 500 rose 0.6 percent to 2,42518, with information technology leading advancers. The Nasdaq composite outperformed, advancing 1.04 percent to 6,153.08.

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 up.  Bull market -- expect bullish outcomes.
103 NYSE High Low Market Forces
Breadth lines weakening. Also notice the second window new red patch recently. We had many patches like this after mid 2007. CAUTION

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
203 OBV
OBV (red line) is above the market. BULLISH

207 VIX
Fear is way low, but could turn here.
209 VIX Evaluator

211 S&P500 over 50 day
Now about 60% of stocks are above their 50 day MA,  down from last week when it was 65%. CAUTION

213 Green Arrow
Only put new money to work when I draw a green arrow. 

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

303 Aggressive Defensive
Turn to defensive. CAUTION

305 Consumer Bonds vs Equities
Bonds Sell Off. BULLISH

307 Bond Direction
Bonds UP! 

309 Sectors
Consumer toast, banks top. New life in Nasdaq

311 Nations
China and emerging fade

313 Major sectors
Nothing here folks.

! = Pay attention this chart is important this week.

What I Find Interesting

Cars Sales
If you wanted a clue as to the crash coming look back to 2007. In those days the big car companies were practically giving financing deals away to sell cars and keep the steel moving out the doors. In Automotive News they point out that incentives to consumers are rising.

But the tricks are not working GM's inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007.

Now look at Ford stock, I often use Ford as a proxy for the health of the US economy. Folks this Ford is going nowhere.

The car makers are making new cars such a deal that the price of used cars is falling, again something generally only seen before a recession. Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles.

So the picture below is the real state of the auto industry:

Tesla Has a Bad Week
I pointed out a few weeks ago Tesla is now more valuable than GM even though it loses money on every car they make. Well it sold off hard this week at one point 20% off the high. Of course at the high the stock was up 45% in a year... so perhaps a pull back was due?

As you might have guessed.. . I am not thrilled the NDP is running the province of BC where I live.

Rate Hike Coming for Canada
Canada added more than four times the number of jobs economists had expected in June, capping the best quarter since 2010 and solidifying the view the Bank of Canada will raise interest rates at its meeting next week. These jobs numbers cement the case for the central bankers to raise rates in the coming week. Employment rose by about 103,000 between April and June, or by 0.6 percent, the largest quarterly gain since 2010. The biggest increase in June was 27,000 new jobs in the professional scientific and technical services category. There was also regional strength, from Quebec’s unemployment rate holding at a record low of 6 percent, and Alberta’s rate falling to 7.4 percent from 7.8 percent.

Now the real question as interest rates rise at what point does the real estate market fueled by variable rate mortgages feel the pain?

Toronto 3 Months of Homes Price Cooling
According to Bloomberg Toronto home price have dropped for 3 month in a row. Including new rules to slow down mortgage brokers.

What Works Now

Estee Lauder is a solid money maker and lipstick sells no matter what happens to the economy. The stock is in a pull back might be a buy if if recovers a bit. (Ticker:EL)

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.

First, the period from November through April is normally stronger than the period between May and October. After an April bulge, the performance  usually decline from May to September. Hence, the "sell in May" mantra repeated each year. That doesn't mean stocks always fall during the summer months. It means they usually don't do as well as the winter/spring period. Most corrections, however, do occur during the summer /autumn period. The two weakest months of the year are usually August and September. October often starts off weak and ends up strong, which makes it a tricky month. A lot of corrections and bear markets have bottomed during October. That makes the August through early October period the most dangerous of the calendar year. Notice, however, the July normally experiences a summer bounce before the trend starts to weaken again.

The S&P 500 has not had a 5% correction in a year, perhaps this summer we see one? The breadth weakness on the NYSE 52 High Low is very concerning, this is my best predictive chart. But it is summer and volume is always down. That said, OBV is very strong this week and we have had some good manufacturing data. Gold and bonds are also weak, so probably not the end of this run. So perhaps the bull still has horns.

Time for some fresh air.. I am off to walk scenic Newcastle Island.

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