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October 07, 2017 – Weekend Market Comment

October 7, 2017 – U.S. stocks closed mostly lower on Friday after data showed the labor market experienced its first contraction in seven years.

The Dow Jones industrial average fell 1.72 points to close at 22,773.67, with Chevron and Boeing contributing the most to the losses. The index also snapped a seven-day winning streak.

The S&P 500 declined 0.1 percent to 2,549.33, with consumer staples and telecommunications leading decliners. The index also snapped an eight-day winning streak — its longest in four years — and also ended a streak of six straight record closes, the longest such streak since 1997. The Nasdaq composite eked out a record high, rising 0.07 percent to 6,590.18.

The U.S. lost 33,000 jobs September due in large part to two major hurricanes hitting the country. Last month markets the first time the U.S. labor market contracted since 2010. Economists polled by Reuters had forecast a gain of 90,000 jobs. Despite the weak headline number, average hourly earnings rose to an annualized rate of 2.9 percent. Hourly earnings are closely watched by investors looking for indications on inflation. The unemployment rate also fell to a 16-year low of 4.2 percent.

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 rising uptrend. Notice the 50 day slope second window, could this be a long term trend change? BULLISH Bull market -- expect bullish outcomes.
103 NYSE High Low Market Forces
Breadth lines firm up! BULLISH

105 Non Farm Payroll
Lots of jobs! Small Bump down, could be just weather. But beware this is lagging indicator.  The smart money is gone before this turns down. CAUTION

107 Industrial Production
A new down trend in industrial production. Trump Bump goes to Trump dump? CAUTION 

115 Renko
10 Up Bricks BULLISH

203 OBV
OBV (red line) is with the market. BULLISH
207 VIX
Steady down. Way too quiet... perhaps overdone

209 VIX Evaluator
Looking better

211 S&P500 over 50 day
Now about 75% of stocks are above their 50 day MA, way above last week when it was 63% unlikely to go higher. CAUTION

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

301 NASDAQ Summation
Nasdaq breadth is bouncing up!Expect a strong rebound in QQQ.
303 Aggressive Defensive
Very aggressive, perhaps overdone?

305 Consumer Bonds vs Equities
Bonds drop consumer fail. Mixed signal

307 Bond Direction
Long term bonds flat.

309 Sectors
Nasdaq and consumer gains, banks lead.

311 Nations
China stronger.

313 Major sectors
Canada run falters on energy price.

! = Pay attention this chart is important this week.

What I Find Interesting

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

Catalonia and Poutine
Catalonia’s secessionist movement is the biggest threat to the constitutional order in Spain since democracy was introduced in the late 1970s. A week ago on Sunday came an unofficial vote to break away, setting the 7.5 million Catalans on course for a unilateral declaration of independence, flouted the authority of Spain’s courts, national leaders, police and military. It called into question the legal framework of the country’s $1 trillion economy. 

Spain's Prime Minister Mariano Rajoy has one major card to play: suspending Catalan autonomy under Article 155 of the 1978 Constitution. That allows the central government to force a region to obey laws when disobedience “gravely threatens the general interest of Spain.” 

  • Did you Know: Catalonia represents ~20% of Spanish GDP, and contributes to fiscal transfers towards poorer Spanish regions. Catalonia is also one of the most indebted Spanish regions.

But this is like having a wife that you chain in the basement when she asks for a divorce. What is the point? If they need to leave then they should get on with it. 

I have often said this about the Canadian province of Quebec. Hanging on just has created a bitter divide. Besides, for Western Canadians, a nation of Quebec with its own currency, would be like a near by Mexico (struggling currency, different culture) with better food.  

Fear & Greed  
The CNN Fear Greed gauge is a composite of 7 factors:
  • Stock Price Momentum: The S&P 500 (SPX) versus its 125-day moving average
  • Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange
  • Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining.
  • Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options
  • Junk Bond Demand: The spread between yields on investment grade bonds and junk bonds
  • Market Volatility: The VIX (VIX), which measures volatility
  • Safe Haven Demand: The difference in returns for stocks versus Treasuries
Following the famous Warren Buffet maxim;
"Be fearful when others are greedy and greedy when others are fearful."

This indicator tells you when you should be aggressive or defensive... I think it speaks for itself:

Economist Bull
It is always concerning when popular magazines show a bull on their cover. This is a sign the public is getting greedy. So did you see the Economist this week? 

Worth Reading
Mark Hulbert this week said in MarketWatch that the rate of household investment in stocks is at a near record and that often predicts a market top. 

"Outside my old office in Wall Street there used to be an old beggar to whom I often gave gratuities. One day during the 1929 madness he stopped me and said, 'I have a good tip for you'. When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing.
- Bernard Baruch

Robot Argues with Analyst
According to Bloomberg -- Wells Fargo has created an Artificial Intelegence ap named AREIA, that reads company reports and makes unbiased buy and sell recommendations. In a twist this week, AREIA said to sell Facebook and Google, while the human analysts at Wells Fargo said to stay long. Actually I agree with the sell recommendation.

Gold Hits Support
Gold has been selling off as the market shoots higher, according Arthur Hill says the precious metal it is at a key point of support:

I think a spike in the VIX would turn gold around (but I have been wrong for two weeks now):

It would also help if the U.S. dollar weakens again (Gold is priced in US dollars) 

What Works Now

From GM to Manitowoc vehicle sales are ramping up!

Cholesterol Cure
What does America want? How about to watch 50 hours of ESPN a week and dine on all you can eat ribs at Montana's and still not die from the bodily abuse.

Scientist say weight gain in the American population seems to be virtually all due to the consumption of more calories. But why limit intake, when your doctor has a simple pill.

Esperion Therapeutics is developing a new drug that it says can lower LDL cholesterol, the bad kind associated with heart attacks (Ticker: ESRP)


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.

We took a small hit on Friday due to a lower than expected employment report, but the day ended in a pre-weekend buying spree. Experts blame the hurricanes but I am suspicious.  Starting this week we're going to start hearing from thousands of companies as they release their numbers. There's nothing traders and longer term investors care about more than earnings.

Since its 2009 lows, the S&P 500 is up more than 250%, the second-longest bull market ever. This week we saw strong gains in small caps, tech and even the FANG stocks. All signs of a healthy bull. This has been a rip your face off rally, however I remain long but conservative. Not being aggressive cost me in total return, but as you know I think we are in the final inning of this bull. Honestly the only reason I say that is all circumstantial. From a technical view things look a bit over-bought, but this bull has really had some horns!

This leads to a deep feeling of "missing out", I have had that feeling before, it was in 1999 -- as the tech bubble was in the last run up of the "blow off top".  On the other hand . . .

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