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August 19, 2017 – Weekend Market Comment

August 19, 2017 – Similar (only stronger) selling pressure resumed with a vengeance Thursday, with a lot of support levels broken, to be broken with buy the dip Friday. Thursday the S&P 500 fell back below the 50-day average to the lowest level in more than a month. Volume was higher. More serious damage was done to smaller stocks. The Russell 2000 Small Cap Index closed below its 200-day average for the first time in more than a year.

U.S. equities closed off their session lows on Friday after Steve Bannon, one of President Donald Trump's top advisors, left the administration. Traders at the New York Stock Exchange literally cheered the news that Bannon was out of the administration.

Here is what the NASDAQ looked like this week:


The S&P 500 closed 0.18 percent lower at 2,425.55 , after falling as much as 0.5 percent. NBC News confirmed earlier reports that Bannon had left Trump's team. A report from Axios hinting at Bannon's departure sparked a turn higher in stocks earlier in the session, with the S&P rising as much as 0.4 percent. The Dow Jones industrial average closed 76.22 points lower at 21,674.51; it jumped about 130 points off its earlier lows.

Here is what our charts say:


CLICK HERE: To see the 100 and 200 series charts



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 a big sell off.  Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
Breadth lines CROSS! Red on the indicator bellow.  We had many patches like this after mid 2007. Very dangerous. BEARISH

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
Renewed stronger industrial production. All hail the Trump Bump. BULLISH
!
115 Renko
3 Down Bricks CAUTION

203 OBV
OBV (red line) is near the market. 

207 VIX
FEAR IS ON!
BEARISH
!
209 VIX Evaluator
STRONG NEW UP TICK BEARISH


211 S&P500 over 50 day
Now about 43% of stocks are above their 50 day MA,  down from last week when it was 46%. CAUTION

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

!
301 NASDAQ Summation
Nasdaq breadth is falling. Pay attention -- could be volatile.
BEARISH
!
303 Aggressive Defensive
Very defensive. BEARISH

305 Consumer Bonds vs Equities
Bonds rise consumer flat. BEARISH

307 Bond Direction
Bonds Rise! BEARISH

309 Sectors
Consumer toast, caution rising utilities.
CAUTION

311 Nations
World sucks less than USA. China and emerging best places to hide.

313 Major sectors
China and emerging rule.

! = Pay attention this chart is important this week.




What I Find Interesting


The Warning
If you have not done so please read my take on why the markets are set for a sell off.

IMF Gives Up on China
The IMF Issues a warning this week,  saying China’s credit-fuelled economic strategy has been branded as dangerous by the International Monetary Fund in a strongly-worded statement warning that its approach. The IMF seldom says anything negative about a country but the debt mess in China is heading to be the biggest in human history, by IMF projections headed for $400 trillion. 

The IMF also highlighted its worries about the rapid growth of China’s banking sector, now one of the largest in the world. “China now has one of the largest banking sectors in the world. At 310% GDP, China’s banking sector is above the advanced economy average and nearly three times the emerging market average. “The sharp growth in recent years reflects both a rise in credit to the real economy and intra-financial sector claims. The increase in size, complexity and interconnectedness of these exposures have resulted in sharply rising risks.”

Of course what no one is talking about is, China is NOT as isolated from the global economy as they think. Sure no bank in China is connected to global banks like Lehman was. But most of what is driving today's world economy is construction and real estate speculation. Economists forget that China's elite are sneaking money out of the country, this has built a global property bubble. That same bubble, when it pops, will make them sell their real estate holdings.  Probably causing implosions in Vancouver, Toronto, Sydney, San Jose, New York and London. In fact Sydney is well on it way to collapse.


What Works Now

GOLD
(Ticker:GLD)

U.S Treasuries
(Ticker:TLT)


Cash
You might also hold some cash or the money market ETF (Ticker:SHY)



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.

As you know last week my analysis grid of the charts was a sea of yellow CAUTION and red BEARISH warnings.  Now you see what I was worried about.

So what now? Well here is the situation, short term we are in for bumps up and down, it could go sideways for a few weeks, but a bigger sell off is coming and my guess is September. Sure we are in a bull market there could be a good pop up before Sept. or not.
The important thing is you must understand the weather has changed. My most favoritest, bestsest chart, in the whole wide world is.... 103 NYSE High Low Market Forces. What this chart says, is on the big board (the NYSE) the bigger more stable firms, now have more stocks hitting 52 week lows than 52 week highs. Of course with a upward bias on stocks that should not be.  To learn more click here to visit Lesson 5 in the CME4PIF school.  

The Green/Yellow line relationship is very stable, you can be green over yellow for years, as we have been. But when they cross it is like a Jedi Master saying "there is a disturbance in the force". Or if you prefer, it is like seeing leaves turn on trees, you know there is a change in the season coming. This week YELLOW IS OVER GREEN and I wrote BEARISH in the grid. Now it is not as bad as it can be, that red splotch in the second window is at -100 it can go to -1000 in a crash. That said, it has not been this low in a couple of years.


Also as I have pointed out repeatedly, the VIX has been so low for so long there is clearly too much hubris and complacency in the market. Chart 209 has changed direction and this could be a VIX bump (as we have had for the last 3 years)  or a real turn in fear, the beginning of a recession.

Chart 301 the NASDAQ summation has been in a steep dive for weeks. Also a great early warning system the markets are avoiding risk.

Lets face it a pull back is overdue anyway. The S&P 500 has been zooming to crazy levels and if the second half of this year goes like the first half it will be a record year. You should read my take (Warning of 2017) on the mounting bad news to understand why this year has no reason to be a record year. 

Of course the markets can do anything -- but if you want a guess it might look like prior years. Typically we get a sell-off in the summer, then a buy the dip rally. If there is going to be big trouble it comes in September.  That could easily be 2017. At the very least we could loose half our 2017 gains in a good pull back.

It is STILL a BULL MARKET that means be defensive not short. The TLT Bond ETF  (Ticker:TLT) and Gold (Ticker:GLD) look good, you should have already bought some. You might also hold some cash or the money market ETF (Ticker:SHY).   My defensive stocks are down a couple of percent and I am earning dividends -- but if I had stayed with my high flyers I would be down 15% now... Right now it pays to be cautious as I have been saying for weeks.

Overall I think faith in the Trump Bump is turning into fear of the Trump Dump.









You can learn more about my indicators by visiting the CME4PIF school by clicking here.


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