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November 11, 2017 – Weekend Market Comment

November 11, 2017 – The major U.S. stock indexes traded mostly lower on Friday as they threatened to snap multi-week winning streaks as tech stocks pulled back.

The Dow Jones industrial average fell about 26 points, with Intel and Merck as the biggest decliners. But a 3 percent gain in Disney shares capped losses in the 30-stock index.

The S&P 500 declined 0.05 percent, with health care and energy as the biggest declining sectors. Johnson Controls was the worst-performing stock in the index, falling 3.9 percent. The Nasdaq composite traded just above the flatline. The Dow and S&P 500 were on track to snap an eight-week winning; the Nasdaq was on pace to end a six-week winning streak. Meanwhile, the Russell 2000 — which tracks small-cap stocks — was on track for its biggest weekly decline since August. 

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 the beginning of the end a long term trend change? BULLISH Bull market -- expect bullish outcomes.
103 NYSE High Low Market Forces
Breadth starting to deteriorate.  CAUTION

105 Non Farm Payroll
Lots of jobs! Beware this is lagging indicator.  The smart money is gone before this turns down. 

107 Industrial Production
A new up trend in industrial production. BULLISH

115 Renko
9 Up Bricks BULLISH

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

207 VIX
Some fear returns, after bumpy Thursday

209 VIX Evaluator
All good.

211 S&P500 over 50 day
Now about 65% of stocks are above their 50 day MA, a bit off last week when it was 66%. CAUTION

213 Green Arrow
Only put new money to work when I draw a green arrow.  But TRIX looks good! 

301 NASDAQ Summation
NASDAQ breadth narrowing! Expect a top in QQQ. BEARISH
303 Aggressive Defensive

305 Consumer Bonds vs Equities
Bonds retreat on rate hike fears. Consumer uptick. 

307 Bond Direction
Long term bonds flat.

309 Sectors
NASDAQ peaks. Banks look frisky. Little uptick in consumer.

311 Nations
China looks good, Germany not so good.

313 Major sectors
Commodities do well.

! = 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. 

Your Junk has Shrinkage
Junk bonds have been where the action is for bond traders since the 2008 sell off.  Imagine just holding an ETF (ticker:JNK) full of bonds and making 130% return, even through interest rates are at an all time low.

However this week was not so kind to the Junk Bond market with a rapid sell-off. Remember generally bond traders are smarter than equity traders, so when they pull in their horns and sell risk to buy safety, perhaps we should perk our ears up too! 

Polish Government Urges Young People to Breed Like Rabbits.
Poland has a shrink birth rate about -5% to few births to deaths. The government is taking out ads encouraging more pregnancy. 

Bitcoin Plunge
Bitcoin ended this week with a huge sell off, if this had been a NYSE stock it would have fell so far that trading would have halted (circuit breakers kick in at 7%). Bitcoin is now trading more than $1,000 below where it was after a faction of the community scrapped plans for a so-called hard fork. Bitcoin was down 8 percent Friday.

London Real Estate Squeeze
Possible the most overpriced realty in the world is cooling. According to Bloomberg, interest in property in London droped to an all time low -- down over 80% from last year. Prices are falling too, in the slowest districts prices are off as much as 20%. It would be easy to site Brexit, but more likely this is part of a global clampdown on Asian property speculators, uncertainty in the Saudi power structure and a clamp down on realty based money laundering after the Panama Papers and the Paradise Papers.  

The Amazing KKH
At a height of 15,397 ft. above sea level, the Karakoram Highway (KKH) is the highest paved international road. It is also considered as the 8th wonder of the world. The highway connects Pakistan’s Gilgit-Baltistan region to China’s Xinjiang region which is why it has also been nicknamed the ‘Friendship Highway’ in China.

The construction of the highway began in 1959 and was completed in 1979. It was opened to the public in 1986. Many Chinese and Pakistani workers lost their lives to the construction of this monument of a highway that people come to view. The beauty of the nature that can be seen from the highway and how the mountains were cut to reach such a height are beyond belief.

India Surpasses China As Global Wasteland
According to the statistics site Atlas, India now has more SO2 smog than China.  China has come to the see they will all die if they don't curtail the killer smog blanketing the country. Particularly the deadly gas Sulfur Dioxide. Fortunately there is a place for the world's super polluters that is not so worried about human health and welfare - India.

What Works Now

Oil and selected metals are getting much stronger as the market fears a rate hike killing bond performance and an overpriced stock market.  The chart shows the iShares commodity ETF (Ticker:COMT)

Palladium has had a great year so far. In addition to being precious and rare, both platinum and palladium have industrial uses, as well. This amplifies demand. And both metals have accrued large production deficits over the past few years. Given that, it shouldn’t come as a surprise that platinum and palladium are out-performing gold and silver. Palladium actually lead 2017 as the world's best-performing precious metal, gaining more than 50% in the past year.

Graphics and Math Chips
The market’s top technology companies are collecting petabytes of customer data, satellite images, website content, weather sensor data, and much more. What’s left to turn all this information into cars that drive themselves, drones that carry out autonomous missions, or online shopping platforms that know what you’ll buy before you do? Massive, massive processing power. Enter Nvidia. Making chips for A.I. cellphones, and Bitcoin miners.... what not to love?  Chip maker Nvidia corp just keeps rolling along (Ticker:NVDA)

Chicken Chokers
Sanderson Farms is a big chicken murdering machine, that has a good record of performance this year. The industry business model is to give chicks to farmers, then squeeze the small farmers. The small framers deal with all the chicken shit and through tough penalties in their contracts take on all the debt, financial risk and get little for all their work. Sanderson gets back the fully grown chickens for cheep-cheep. Evil, but it looks like it is heading for another run up. Even if the market sells off, people still gotta eat.  Earnings are out just before Christmas, don't be chicken and miss this one.  (Ticker:SAFM)

Rotating Nations
If you want to put a segment of your funds outside of US lets look at some top performing nation based etfs. Consider this set up during November.
50% MCHI China
35% EWC Canada
15% EWH Hong Kong

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 I have been saying since August the first weeks of November are vulnerable. It is still a bull market, however, the breadth is deteriorating on chart 103 and has been deteriorating on chart 301 for a while. Chart 303 is looking very defensive now. Thursday we had our first real spike in the VIX in weeks. 

The small cap stocks are very weak with the Russell 2000 hitting the 50day moving average today.  Here it is displayed as Bull Bear lines:

I think the bulls are beginning to realize they are all in the same crowded trades. FANG, suppliers to FANG and few big cap firms like CAT and Conoco. The biggest offender for overcrowded is short volatility. You simply can not get anything for premium selling options where you take on risk. The VIX has been sliding lower for months. The new traders are buying VIX ETFs and VIX futures like there is no danger of a market sell off. 

I know a South American trader who is up over 130% in 2017 selling volatility short and sees no reason this party will end, his naked positions have unlimited downside, he could wipe out his whole account in one afternoon, if we have an 800 point drop in the Dow. That has happened before, just not in his trading career. 

The movement from smart money has been toward offshore and commodities. A sign that stocks are due for a healthy pull back. Not the same thing as a crash - but pull in those horns young bulls. I am long but very cautious.

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