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January 20, 2018 – Weekend Market Comment

January 20, 2018 – The Dow Jones didn't fail this time.  After Tuesday's huge reversal from above the 26,000 level, there were a number of question marks about whether the current rally would continue.  The next day the Dow Jones answered those questions rather emphatically with its first close above 26,000 in history.  The Dow Jones has now cleared its fifth psychological thousand point level in the past six months, truly astounding.

Stocks closed higher on Friday as investors shrugged off worries about a possible government shutdown. Friday was the last trading day before options expiration, so higher than normal volume. The S&P 500 rose 0.4 percent to close at 2,810.30, a record high, with consumer staples as the best-performing sector. The NASDAQ composite climbed 0.6 percent to finish at 7,336.38, also a record. The Dow Jones industrial average closed 53.91 points higher at 26,071.72, despite pullbacks in IBM and American Express.

Earnings season kicked into full gear this week, with most results surpassing expectations. Of the companies that have reported quarterly results as of Friday morning, 79 percent have exceeded earnings expectations while 89 percent have surpassed sales estimates.

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 second window,  this is a long term trend change. BULLISH Bull market -- expect bullish outcomes.
103 NYSE High Low Market Forces
Breadth lines way way up! BULLISH

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

107 Industrial Production
Strong industrial production. Trump Bump.  BULLISH

115 Renko

203 OBV
OBV (red line) is with the market. BULLISH
207 VIX
A little more healthy caution.

209 VIX Evaluator
Upturn. Possible trouble. CAUTION

211 S&P500 over 50 day
Now about 80% of stocks are above their 50 day MA, below last week when it was 81%. BULLISH

213 Green Arrow
Looks very strong BULLISH

301 NASDAQ Summation
NASDAQ breadth is up but could fade.
303 Aggressive Defensive
Losing some mojo. CAUTION

305 Consumer Bonds vs Equities
Bonds fall hard, strong consumer rise.  BULLISH

307 Bond Direction
Long term bonds drop. BULLISH

309 Sectors
Defensives get a lift. CAUTION 

311 Nations
Germany bounce, China amazing, Canada sucks, everyone else does well. 

313 Major sectors
Canada sucks.... China and emerging rule.

! = Pay attention this chart is important this week.

What I Find Interesting
Trump Laundry
According to Thomas Frank of BuzzFeed -- new specific amounts and numbers are surfacing about the President's Money Laundering via condo scheme. The article points to the Trump SoHo Hotel Condominium New York in Manhattan, where 77% of the sales were to shell companies that paid cash. One of the project’s Russia-born developers was convicted of money laundering in the 1990s.

Thirty-nine secretive sales were for more than $5 million in current dollars – an amount that one anti-money-laundering advocate says should prompt a seller to scrutinize the buyer. All but four of the sales were in buildings that Trump developed, earning him $241 million.

Statistically Speaking
Tom Bowley says the October 28th through January 18th period is the S&P 500's most bullish of the year, averaging 4.4% gains over the past 67 years.  In other words, 83 calendar days out of 365 (22.7% of the year) accounts for 48.5% of the S&P 500's advance since 1950.  There's been a very strong bias for stock market outperforming during this period.

There's good news and there's bad news.

The bad news is that this week we past January 18th and ends this historically bullish period.  The good news is that the best 25% of October 28th-January 18th periods historically lead to solid outperformance over the subsequent three months (through April 18th).  You might think that really strong advances would require a pause or consolidation....or even outright selling.  History tells us that is not the case.  In order for the October 28, 2017 to January 18, 2018 period to rank in the top 25% of all such periods since 1950, the S&P 500 must close above 2805 today.  A close at 2805 would result in an 8.68% advance in the S&P 500 since the October 27th close, placing this year in the top quartile.  This top quartile has produced very solid results over the subsequent three months.

Here are a couple facts surrounding these stats:

(1) From January 19th through April 18th, the S&P 500 has gained more than 10% only 8 times since 1950.  6 of those major advances belong to years that are in the top quartile of October 28-January 18 periods.  Put another way, in order to see a major advance starting on January 19th, it certainly helps to begin the period in a raging bull market.

(2) The top quartile of October 28-January 18 periods have produced average returns of 5.79% over the next three months.  On the flip side, those periods that fall outside the top quartile have produced average returns of just 2.10% over the next 90 days.

Dogs of the World
There is a famous investing system called Dogs of the Dow, now CNBC has published an interesting strategy called the Dogs of the World. The idea is to buy at the start of the year the five worst country ETFs from last year and hold those for a year. Here were the 2017 results; 

  • Turkey: 37 percent
  • Denmark: 35 percent
  • Ireland: 29 percent
  • Italy: 29 percent
  • Mexico: 14 percent

Another Shot at the "Entitled"
Speaking of dogs. Please read my post called "Gaming the Handicapped". On the rapid increase in the number of people using handicapped privileges who are not entitled to them. The number of emotional support dogs flying is up 48% in the last 12 months. 

The Great Rush to Buy
Well we all know that the markets advance when people buy stocks, but the volume always peeks at the top. According to Bank of America we have never seen buying volume this strong. according to the latest EPFR fund flow data as compiled by Bank of America, they have been putting their money where their euphoria is.

According to BofA CIO Michael Hartnett, the 4-week inflows into equities was not only "thundering", it was the largest ever. This is the result of a massive $23.9bn weekly inflow into equities which brings the 4-week inflow to stocks to the biggest ever, $58bn as shown in Chart  below:

Copper Stalls

Copper is often used as a gauge of economic health, since it is used by both industry and home construction. Since 2018 began copper has failed to make new highs.

Bitcoin vs Blackberry
Lets see the 30day return on owning some bitcoin or the stock of a nearly dead cell phone maker, Blackberry. The black line is Blackberry, green dots is the price of bit coin. 

Bitcoin Accepted Here
According to the IBT website the "World's Oldest Profession" is going to be an early adopter of Crypto currency.  The Bunny Ranch in California says it is accepting Bitcoin. I have often said that to be a currency you need to be able to spend it on goods and services... and it looks like these ladies are prepared to provide services. 

Mr. Hof the owner says; "The anonymous nature of bitcoin is a natural fit for people who have much to lose if their private matters were to ever fall into the wrong hands." He added; "before describing how clients would come into the brothel with duffel bags full of cash, which poses a security problem."

I think when you also can buy beer with this stuff it could get to be useful. 

Have You Been to a Theatre Lately?

When THX Surround Sound came out the slogan was "The Audience is Listing", the new slogan for theatres is "The Audience is Missing".  According the National Association of Theatre Owners, which estimates admissions based on reports from theatre owners -- 2017, admissions in the US and Canada fell to a low not seen since 1995, when they dipped to 1.21 billion. An estimated 1.24 billion movie tickets were sold in the US and Canada last year, a 6% drop from the previous year when growth was flat. Despite ideas like, better seats, live stream fights or sports and even serving booze or full meals. Consumers are not going to the movies.  

I predicted this in my May 2013 blog post, The Future of Zombietown.  With all the competition from streaming video and TV, it’s a miracle cinemas sold that many tickets at all. As this heats up we will see high-end production leave the traditional studios to reappear at Netflix.

CGI Video -- Future Recreation

What Works Now
Oshkosh By Gosh

Rotating Nations
If you want to put a segment of your funds outside of USA let's look at some top performing nation based ETFs. 

Here are my picks for January hold until month end. 
50% FXI China
35% EWY South Korea
15% NORW Norway

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.

Ho hum another new record... What do I say every week... Bull market, can't lose. Prices are way overvalued but the market can remain irrational longer than you can remain solvent. Be long and aggressive until something huge stops all this.

One very encouraging thing this week is that small caps outperformed the S&P 500. A broad healthy market is best.

Even the news this morning that despite last minute 'compromise' meetings, and continued "hopes" from various sides, The Senate failed to reach the 60 votes necessary to keep the government funded (even for a stopgap) and so, as of midnight tonight, the government will shut down. If not fixed by Monday morning we could see a down day or two. This is probably what was spiking the VIX fear index a bit on Friday.

In mathematical terms, a parabola is a curve where any point is at an equal distance from a fixed point called the focus and a fixed straight line called the directrix. In the context of the stock market, a parabolic move simply means that the rate of the stock market gains will increase by a large amount. A parabolic move can be highly profitable. There is potential to make more money in the stock market than has already been made. . .

The problem is the ever-increasing angle of ascent of the price index. The steeper it gets the less likely it is to continue, but it is still impossible to predict when it will end. There was some sideways churn this week, but it didn't do any technical damage.  However the bad news is this is phase of panic buying... and when it ends, and it will, there is no one left but sellers. In other words the last suckers all arrive as a thundering herd. But from what I see they are still coming in and bidding up the price. 

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