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February 10, 2018 - Weekend Market Comment

February 10, 2018 - The Dow Jones industrial average rebounded more than 300 points Friday, paring deep losses for investors in what still amounted to the worst week in two years. 

The Dow ended the day up 330.44 points, or 1.38 percent, closing at 24,190.90. The S&P 500 rallied 1.49 percent to finish at 2,619.55, while the NASDAQ composite added 1.44 percent to close at 6,874.49. The index swung more than 1,000 points in volatile trading Friday.  The Dow and the S&P 500 both lost 5.2 percent on the week, while the NASDAQ shed 5.1 percent as rising interest rates spooked investors. The Dow average experienced two drops of more than 1,000 points and two gains of more than 300 points during this volatile week. At their lows this week, all three major indexes were in correction territory from the record highs reached in January.



  • The Dow Jones industrial average swung more than 1000 points in volatile trading Friday.
  • The Dow and the S&P 500 both ended the week 5.2 percent lower, their worst performance since January 2016.
  • The Dow average experienced two drops of more than 1,000 points and two gains of more than 300 points during this volatile week.

Yup it was ugly Monday and Thursday:


Here is what our charts say:


Click here for the 100 and 200 series charts




101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a falling downtrend. That said the market looks very weak. Notice the second window, slope is rapidly decelerating. This is very probably a long term trend change. BULLISH Bull market -- expect bullish outcomes.
!
103 NYSE High Low Market Forces
CROSSOVER Big danger in breadth. In the second windoww we have arecent dip below the 400 line, that means expect more trouble soon. Breadth is deteriorating. BEARISH

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
Many Down Bricks BEARISH

203 OBV
OBV (red line) is above the market. The big players are buying the dip BULLISH

207 VIX
30+ Vikes!
BEARISH 
!
209 VIX Evaluator
First move up this strong in many years
BEARISH


211 S&P500 over 50 day
Now about 18% of stocks are above their 50 day MA, above last week when it was 60%. BEARISH

213 Green Arrow
Looks like armageddon.  BEARISH


301 NASDAQ Summation
NASDAQ breadth is in free fall! Expect trouble in  QQQ and technology stocks.
BEARISH
!
303 Aggressive Defensive
Very defensive, tried to come back but could not. BEARISH

305 Consumer Bonds vs Equities
Bonds rise consumer falls.  BEARISH

307 Bond Direction
Long term bonds fall.  

309 Sectors
Defensives rise and utilities rise. 

311 Nations
All down, small lift in emerging markets.

313 Major sectors
Some hope in commodities and gold. 

! = Pay attention this chart is important this week.

What I Find Interesting
If you have not yet please read my post from last August: "The Warning of 2017"


What Works Now
Gold
I have had physical gold Maple Leaf coins and the gold ETF since Christmas 2017. (Ticker:GLD)


What I Think
I think we are at the end of a cyclical bull market (since February 2016) within a near record long, secular bull market (since early-2009).

As I said last week going in to this week I only had stable defence type equities, a lot of cash and gold. Well Monday one hour in to the session, I was convinced I did not need any further market exposure and I wisely liquidated it all except the gold. As I often say, cash is a position too.


It goes without saying the risk is very high now, this could be a pull back but it looks more like a global disaster, for the reasons I posted last August in the The Warning of 2017, especially the section on the VIX. Anyone who says the markets are random and can not be predicted had a chance to see me do it, in real time last August and the prior 3 market comments. 


Lets what I said in prior comments as the market deteriorated. 


1 Weeks Ago -- "That said a 600 point drop is a real scary thing" and also "-- this is no time to complacent, antennas UP!  Continue to monitor the bull bear lines, continue to watch chart 209 for increased volatility and always watch chart 103 to make sure breath does not disintegrate. "

2 Weeks Ago"According to Bank of America, the market is overbought."

and "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). " and a final note "for short term speculators, I would advise a way less aggressiveness"

3 Weeks Ago - "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. "

I am flat equities. Yes the buy the dip crowd could come in here and make a big bounce. However we just violated the 400 line on the bottom of the 52 week high low chart (chart 103) that is big trouble and this is not time to be excited about being long stocks. Sure this could just be the much anticipated correction but the VIX has had a serious shock and about $100 billion in short VIX positions are being unwound and this will not be pretty.

For example the ProShare short term ETF is (Ticker:SVXY). This ETF has been on a steady slope up as it gently climbed to about 140, then in just a few days, boom -- under 10. Lets say on Jan 23 you had 7,150 shares of SVXY, that would be over a cool million bucks. On the close Thursday you would be left with something in the range of $65,000 wow that was quick. 

I have been saying that many people are fooling with VIX ETFs who do not understand them... well they get it now don't they?




So here is the bottom line, around the world $5 Trillion in market value is gone. After a year of nothing but up we have a market that can and will go down. I would urge great caution about entering the markets here or even holding equities at all.







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