Skip to main content

January 27, 2018 – Weekend Market Comment

January 27, 2018 – U.S. stocks closed sharply higher on Friday as quarterly earnings top estimates, while the economy continues to grow.

The Dow Jones industrial average rose 223.92 points and hit intraday and closing records. The 30-stock index finished the session at 26,616.71. The S&P 500 gained 1.2 percent to 2,872.87, with tech and health care as the best-performing sectors, and also reached an all-time high. The broad index also had its biggest one-day gain since March 1, 2017. The NASDAQ composite advanced 1.3 percent to close at 7,505.77 and notched record highs. It also had its best day since Jan. 2.

The major indexes also posted weekly gains of at least 2 percent. This week every index hit an all time high at some point. 

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 83% of stocks are above their 50 day MA, above last week when it was 80%. BULLISH

213 Green Arrow
Looks very strong. BULLISH

301 NASDAQ Summation
NASDAQ breadth is up but could be fading a bit. Don't panic yet.

303 Aggressive Defensive
Clear roll over. 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
Emerging and China amazing, Germany and Canada sucks.

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

! = Pay attention this chart is important this week.

What I Find Interesting

The Warning
If you have not allready .. please read The Warning of 2017, why the markets are near to a sell off.

24 Hour Retail Trading
If you use a professional platform to trade like Goldman or Interactive Brokers you can trade all the worlds financial products mostly around the clock. According to TD Ameritrade they are going to allow (USA based clients) a few limited equities like Apple and Amazon along with the SPY ETF to trade 24 hours a day. 

Since 1993, if you bought the S&P 500 on the open and sold on the close each day, your return would be -5.2%... But if you did opposite (bought on the close, sold on the open the next day) your return would be a stunning 568%. (meaning more than all of the S&P's investment performance came in after-hours trading)

One Trillion (Fake) Dollars
The long awaited Trump infrastructure plan has been leaked. It smells like bad cheese. The headlines say One Trillion dollars but the rules are that any funds must be matched 80% by the local government in cash or borrowing -- only then you get 20% federal matching funds. In other words New York City can't pay to fix its bridges, tunnels and sewers now, so why could they afford if it is 20% off? However a wealthy place like Orange County may get some higher end landscaping on their proposed jogging parks. The plan also has zero provisions for upgrading the national electrical grid or for improving commuter rail service.

Why Your Hotel "Safe" .. Is Not

Cyber Currency Thief
In a new first for Canada, According to the Ottawa Citizen this week we had the first attempted armed robbery of a Cryptocurrency exchange. The robbers failed when the cops pulled up to the office. 

In another part of the world -- Japan, $400 million dollars was stolen in cyber currency by hackers. Read more on the Nikkei web site (not translated). 

Say Anything
In Vietnam the CIA used faked black and white photos to blackmail government officials they wanted to cooperate. Now anyone can be made to say anything you want... look at this university research video of AI reenactment. Fake news just got a new tool. 

Surprise Ruling
According the BBC in the Bombardier/Boeing dispute an arbitration panel sided with Bombardier. In April, Boeing asked the U.S. Commerce Department to investigate whether Bombardier had taken advantage of alleged subsidies and unfair pricing to sell 75 of its new C-Series planes to Delta Air Lines. Boeing claims that its Canadian rival sold planes, at $19.6 million apiece, in the U.S. at "absurdly low prices, in violation of U.S. and global trade laws."

Bank of America Indicator
According to Bank of America, the market is overbought. In a new report BofA said, 
  • BofAML Bull & Bear indicator surges to 7.9, highest since last sell signal >8 triggered Mar’13;
  • BofAML Bull & Bear indicator has given 11 sell signals since 2002; hit ratio = 11/11; average equity peak-to-trough drop following 3 months = 12%; note the last Bull & Bear indicator flashed was a buy signal of 0 on Feb 11th 2016
The report summed it up this way... "a tactical S&P500 pullback to 2686 in Feb/Mar now very likely."
Notice that is a correction they expect, not a crash. 

What Works Now
Cure for Cancer
Novocure is the company behind TTFields, a revolutionary new and nontoxic treatment for glioblastoma cancer that uses low-intensity, alternating electrical fields to impede cancerous cell division and kill cancer cells. (Ticker:NVCR)

Rotating Nations
If you want to put a segment of your funds outside of US lets look at some top performing nation based ETFs. 

We have no new picks for February so hold your January picks until the end of February.

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

Lets see how we did in January.... A clear win for our offshore holdings over the U.S. market (black line). China (green line) was a big winner up 17% in a month. Even with the threat of Armageddon, South Korea (orange) still beat the US market by a third more.

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.

This week every index hit an all time high at some point. Many analysts on the street are saying "Ho Hum" there is not much to do, every day is a new high, hard not to be bullish. Goggle analytics announced that Goggle searches for “Stock market” were at one year highs just last week, up 33% from a year ago. Yup mom and pop are jumping in. Sounds like over optimistic market? Ya think? 

If you need something to fret about there are some "red lights" showing. Perhaps we have been a bit greedy? Chart 209 shows that VIX concerns are increasing (that could be huge trouble). Chart 303 (below) is looking more defensively. This chart compares the highly speculative juiced midcap 400 ETF (Ticker:MVV) with the conservative dividend ETF (Ticker:DVY). It is not the time to panic, but for short term speculators, I would advise a way less aggressiveness, long-term investors can go back to sleep. Take some profits, some more cash, some more gold. Trouble comes when people least expect it. 

As we saw above, China is doing very well as investors see China building stronger trade ties around the world as the USA cuts its global trade. As Trump undoes the Trans Pacific Partnership and NAFTA his negotiation style is clear, we want a deal where we win you loose.  "Mr. Art of the Deal" is not getting many nibbles.  

If you study history, in the period from 1880 to 1914 this is the flip side of what America did to gain strength over Europe. The old world fell back on duties and trade barriers to protect local markets. This caused U.S. industry to be more innovative and harder working. Tariffs cause U.S. innovation. When World War 1 broke out, the U.S. had quality -- they only need to produce in volume for a waiting Europe at war.  In those days it was America that built global trade and took the market, today it is China. The U.S. needs to understand that nations are reluctant to deal with nations governed by one party and American truly benefits from open trade.  Isolationism is the wrong direction for America, as it was for Europe 120 years ago.  Be very careful what you wish for Mr. Trump.

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

Don't squint, All graphics can be enlarged by click on them.

Read My Disclaimer Here