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July 15, 2017 – Weekend Market Comment

July 15, 2017 – The S&P 500 joined the Dow Jones industrial average at record levels on Friday as earnings season kicks off.

The S&P climbed 0.4 percent to break above 2,453.82, its previous all-time high set June 19. The Dow, meanwhile, reached record territory earlier this week and notched another intraday record Friday. The Nasdaq composite outperformed, rising 0.4 percent.

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 very strong. Also notice the second window new red patch recently.

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
Recent strength, strong industrial production.  That is good news.

115 Renko
Breakout to new high.
203 OBV
OBV (red line) is above the market. BULLISH

207 VIX
Fear is way low, in fact dangerously low, but could turn here. CAUTION

209 VIX Evaluator
NEW Downward line. BULLISH

211 S&P500 over 50 day
Now about 65% of stocks are above their 50 day MA.

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
Topping Aggressive stage. CAUTION

305 Consumer Bonds vs Equities
Bonds Sell Off. Consumer weak. 

307 Bond Direction
Bonds Suck.

309 Sectors
Consumer toast, banks drop. New life in Nasdaq. Defensives at lows.

311 Nations
China and emerging hot place to be.

313 Major sectors
China and emerging hot place to be.

! = Pay attention this chart is important this week.

What I Find Interesting

China Sends Out a 400,000 Member Army - to Stop Capital Outflow
In Better Dwelling they said that China central bank has enlisted the help of 400,000 insiders in China to crack down on money leaving the country. Using people that should know, like regional Bank Managers, the central bank is looking for the money leaking out of China. 

As regular readers will know this could be a serious issue for Vancouver home prices, as cash leaving China to buy condos in Vancouver dries up.

Green Light gets a Red Light
David Einhorn made his name by, appearing as the legendary "Wall Street Billionaire" on TV poker and his hedge fund, Green Light Capital is famous for gutsy shorting of over-priced tech stocks, that these days, just refuse to go lower in price. Green Light was down 2% in the first half of the year and investors are not impressed.

According to the Wall Street Journal, Green Light Capital was "forced to pay back more than $400 million in clients withdrawals at midyear, as more than 15% of eligible investors chose to redeem their money". They are now at their withdrawal limits but in the fall that amount again may leave the fund. Looks like unit holders are calling "Einhorn's bluff".

I Will Not Be Your Friend if You Are Their Friend
As reported in Live Trucking it is getting desperate at brick and mortar stores. In a rant worthy of a 5-year-old child, executives at Walmart (Ticker:WMT) are telling trucking companies that their stores will no longer do business with them if they continue moving goods for Amazon (Ticker:AMZN).

According to annalists at Deutsche Bank, these developments, "are likely to have significant implications for U.S. transportation companies, in our view, as Amazon and Walmart remain two of the largest users of truckload capacity."

A Slowing in Junk Food
CNBC reports that sales of prepackages foods that are killing us are on the decline ... as consumers suddenly realize the junk in the middle of the store is indeed toxic. In my post Why Sugar is Killing You I explore the dangers of prepackaged food. Looks like the message is getting out there. 

What Works Now

Banks in Mexico
Santander Mexico Fincl Group is Mexico's king of banking and trades on the NYSE. Looks like they are experts at shaking pesos out of poor Mexican's pockets, or perhaps a lot of cash is coming from drug dealers.  (Ticker:BSMX)

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.

Mid week, Fed Chair Janet Yellen provided the Fed's semiannual monetary policy to the House Financial Services Committee, both the bond market and stock market loved what it heard.  The Fed Chair sounded very accommodative in her remarks and bond prices immediately rose.  An hour later, the S&P 500 followed suit, gaping higher and never looking back. All nine sectors finished in positive territory with the Dow Jones closing at an all-time high. 

As bonds drop the market catches fire. Traders expect a run up based on record earnings, but I am not so sure. I look at three sentiment indicators to judge mood. The American Association of Individual Investors (AAII) sentiment poll, the National Association of Active Investment Managers (NAAIM) and the Rydex Asset Ratio. Despite jumping to a new all-time high on Friday, sentiment shows that the bullish exuberance may be fading somewhat. Typically I read sentiment charts as "contrarian". This means that when these charts so an exceptional amount of bulls, that is actually read as bearish for the market and vice versa. However, before the storm, we will usually see some clues that investors and money managers are getting a little antsy or concerned. That's where I think we are right now.

Looking at my charts, that VIX below 10 is a big concern. The consumer is weak, example, once super hot Nike has gone nowhere in a year and a half.

Also, with commodities flat and banks are retreating it does not look all roses. 

I took some profits Friday on my high flyers. I expect cooler heads next week and perhaps a rotation in to defensive stocks, like consumer staples.  I also expect a 5% pull-back before the leaves on the trees turn yellow.

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