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March 31, 2018 – Weekend Market Comment

March 31, 2018 – Major U.S. markets were closed for Good Friday, while most European exchanges also remained shut for Easter Monday.  U.S. stocks rallied on Thursday, the last trading day of the month and the quarter, as the technology sector curbed steep declines seen in recent sessions.

The Dow Jones industrial average rose 254.69 points to close at 24,103.11, with Intel rising 5 percent. The S&P 500 gained 1.4 percent to 2,640.87, with tech rising 2.2 percent. The NASDAQ composite advanced 1.6 percent 7,063.44. Transports also climbed 2 percent, but were still deep in correction territory.

Shares of Facebook rose 4.4 percent, while Apple, Netflix and Alphabet also closed higher. Microsoft rose 2.1 percent after the company announced a major reorganisation. However, the S&P 500 technology sector ended the month 4 percent lower following a slew of negative news for some of the key companies in the space. Last week, reports emerged alleging that Cambridge Analytica, an analytics company, had gathered data from 50 million Facebook profiles without users' permission.

After about 400 market comments with pretty much the same charts, I have decided to move a few things around. Trust me these improvements will help make your life simpler. 

The Green arrow chart is gone, it was not good at doing what it was intended to do. The new 105 aggressive defensive chart has been modified for clarity using different symbols and and time frames from ts predecessor. These were all selected based on computer back tests. It also is so important that it is now in the 100 series. 

The 100 series now is just three vital graphs, answering two core questions. The Bull Bear Lines tell you if you should be in the market at all and chart 103 NYSE 52 week high low market forces, with chart 105 Aggressive Defensive, answer the question -- should you be aggressive or cautious.   

The 200 series are my old favourites that look at some market internals. Technical Analysis is more like a barometer, falling pressure can alert you to a change in conditions but it is not a perfect science.  By viewing these each week I get a feel for what is underlying the market. The human side of Technical Analysis, is often based on hunches and feelings. 

The 300 series are market segments. International vs domestic, bonds vs equities, gold and commodities. This gives you a clue as to what market areas are doing well now. 

Here is what our charts say:

100 Series: In Market? Aggressive or Defensive?   CLICK HERE: View 100 series charts

101 Bull Bear
Bull market (dark green over red)  the dark green 50 day average is in a falling down-trend. Notice the second window, the slope is very negative.  This is a long term trend change. BULLISH Bull market -- expect bullish outcomes.
103 NYSE 52 week high low market forces
Breadth very negative. As I said before, recent dip below 400 on second window, says probably more pain to come.   BEARISH
105 Aggressive Defensive
Defensive.  BEARISH 

Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Lighten up now, be defensive.

200 Series: Market Health   CLICK HERE: View 200 series charts

201 Renko
Down Brick. BEARISH
203 OBV
OBV (red line) is with the market. The big boys still have faith! BULLISH

207 VIX

209 VIX Evaluator
Still heading up, a lot of fear.  BEARISH

211 S&P500 over 50 day
Only 31% of stocks are above their 50 day MA, but better than last week when it was 15%. BEARISH

213 NASDAQ Summation
Some bunce in price but still poor breadth. CAUTION

215 Consumer Bonds vs Equities
Bonds up. Consumer holds in there. CAUTION

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

219 Industrial Production
New tick shows even stronger industrial production.   BULLISH

300 Series: Market Segments   CLICK HERE: View 300 series charts

301 Bond Direction
Long term bonds rising. CAUTION

303 Sectors
Brown and red lines confirm, fear and defensive. Consumer still strong? BEARISH 

305 Nations
Emerging is on topping. China falling. 

307 Major sectors
Nothing much here folks.

! = Pay attention this chart is important this week.

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

The Dow Theory Alarm
The Dow Theory has been beating the market for an awfully long time. One academic study from the 1990s calculated the theory’s track record over the prior seven decades, back to when it was created in the early part of the last century; the study found that the Dow Theory beat the broader market by an average of 4.4 percentage points a year.

1. Both the Dow Jones Industrial Average DJIA, (Blue Line) and the Dow Jones Transportation Average DJT, (Gold Dashed Line) must undergo a significant decline after hitting new highs — “significant” both in terms of time and magnitude. This step was hit in the market’s greater-than-10% correction from the late January highs to the early February lows. (see soft Orange Step 1 section)

2. In their subsequent significant rally following the decline referred to in step one, either one or both of those Dow averages must fail to surpass their highs. This step was satisfied in the market’s rally attempt through its Feb. 26 recovery high which — though it was 8% higher than its early February low — failed to take either Dow average above its January highs. (see soft Green Step 2 section)

3. Both averages must then fall below their lows registered at the bottom of the decline referred to in step one. The levels to watch, therefore, are 23,860.46 points in the case of the Dow Industrials and 10,136.61 for the Dow Transports. In other words the gold line must drop to the bottom of the pink dot. (See Pink dot Step 3). Wow are we close!

One Million Dollars
According to the Visual Capitalist, a million dollars worth of gold is a 833oz cube 11cm on each side. 

More Like Capt. Kangaroo than Capt. Kirk?
Raytheon has demonstrated a laser death ray to knock out drones. There is just one problem .... it sucks! If the drone hovers in place for a long time, it eventually can burn a hole in it. Kind of like a kid setting fire to paper with a magnifying glass on a sunny day. 

Now watch how real drones behave (this video was two years ago):

Honestly do you think that multi-million-dollar death-star-laser could even hit one of this agile drones?  I got a better idea for knocking out drones and it costs less than $1,000.

What Works Now
Consumer retail 
Kohls corp. -- hard to argue for value, PE of 12 and over 2% dividend. (Ticker:KSS)

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

Here were my picks for March, You should have sold Thursday.
50% EWS Singapore
35% RSX Russia
15% EZA South Africa

Another victory for diversification, Singapore and Russia beat the S&P500 and South Africa was close. More importantly, in these funds you were insulated from the tech down-draft this week.

Here are my picks for April, buy when the market opens.
50% EWM Malaysia
35% EPU Peru
15% EPHE Philippians

What I Think
I think we are in a near record long, secular bull market (since early-2009). With no strong evidence it is over. Economy is humming lots of jobs and factories busy. 

I am excited about the new layout for the charts. The new 100 series makes life simple. 

As you see in my 100 series charts I have come to this conclusion:
Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Lighten up now, be defensive.

If you look at the really big picture of the market -- using the Vanguard Total Market ETF (Ticker:VTI) we are down at the February lows. In a year and half you are still up 25%.

For long-term investors this might be the turning point, you know the buy the dip crowd is eager to buy the bottom. 

So for the brave swing traders, perhaps the worst is over. It is still a bull market, that should generate some confidence. Also by many measures we are "over-sold". Lots of things are rebounding off the 200 day moving average. We are also coming to the first trading day of the month, often a strong day and April is a good month historicly. I would not be surprised to find stronger areas bouncing up from the 200 day average, finding resistance at the 50 day moving average, but then what?

That said, I personally don't like the way the market is acting now. As I pointed out last week, many good core American companies like Proctor and Gamble and AIG have very weak charts. In fact half of the Dow 30 are weak. Look below is a chart of market darling Home Depot, ewwww.  

The market was running on the crowded FANG trade and that looks like a bad move right now. Technology is under attack,  between Europe's new taxes on tech, privacy issues and self driving cars crashing -- it bears thinking about. Also with Netflix up 1000% perhaps time for some profit taking?

I am not big on buy the dip these days. In fact I think the cyclical bull market is going to end now.  I tend to be a little more worried about risk than return, so I don't rush in to catch the falling knife.  Right now, with chart 103 and 105 both saying danger -- I think I will stay with safe choices and see if this is a "Dead Cat Bounce". 

Happy Easter.

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