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April 21, 2018 – Weekend Market Comment

April 21, 2018 – Stocks dropped on Friday as a decline in Apple pushed the technology sector lower. A rise in interest rates also kept a lid on equities.

The Dow Jones industrial average fell 201.95 points, or 0.8 percent, to 24,462.94 as Apple dropped 4.1 percent. The NASDAQ composite declined 1.3 percent to close at 7,146.13.The S&P 500 pulled back 0.8 percent to 2,670.14, with tech sliding 1.5 percent. The index also broke below its 50-day moving average, a key technical indicator.

Apple shares fell 4.1 percent after Morgan Stanley said the company's iPhone sales for the June quarter will disappoint Wall Street. The stock had already fallen more than 1 percent for the week heading into Friday's session.

 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 flat-trend. Notice the second window, the slope was rebounding now not so much.  BULLISH Bull market -- expect bullish outcomes.
103 NYSE 52 week high low market forces
Breadth slightly positive. As I said before, recent dip below 400 on the second window, says a long-term danger of more pain to come.   BULLISH
105 Aggressive Defensive
Still aggressive. Not sure this can hold.  BULLISH

Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Be aggressive, the path of least resistance is up.

100 Canadian Series: In Market? Aggressive or Defensive?   CLICK HERE: View 100 Canadian series charts. <-- This is NEW.

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

201 Renko

203 OBV
OBV (red line) is with the market. The big boys still have faith! BULLISH

207 VIX
209 VIX Evaluator
Heading down.  BULLISH

211 S&P500 over 50 day
48% of stocks are above their 50 day MA, well above last week when it was 27%. CAUTION

213 NASDAQ Summation
Some bounce with strong breadth. BULLISH

215 Consumer Bonds vs Equities
Bonds fall. Consumer holds in there. BULLISH

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
Strong industrial production.   BULLISH

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

301 Bond Direction
Long-term bonds falling. BULLISH

303 Sectors
Tech falls on Apple but banks do better. CAUTION

305 Nations
Emerging is falling. China falling. Germany and Canada gets lift in flight to quality.

307 Major Sectors
Emerging looks tired.

! = 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"

Rotten Apple
On Thursday Taiwan Semiconductor (Ticker: TSM) announced much lower earnings.  This firm makes the chips two key market players. The king of cell phones -- Apple (ticker: AAPL) and for Nvidia (Ticker: NVDA) who makes chips for phones, self-driving cars and Bitcoin mines. 

Moving into second quarter 2018, continued weak demand from our mobile sector will negatively impact our business despite strength in cryptocurrency mining,” said CFO Lora Ho in a statement.

Most of the weakness in the market late in the week was due to this one announcement. 

I think users have begun to realize there is nothing new here. In fact in my last few trips through airports, people appear to be not so lost in their phones.  Steve Jobs used to talk about insanely great products, but Apple just keeps tweaking the iPhone and hoping. Right now the hottest innovation they are working on is buttons you can hover over instead of touch the screen. It will not change my life or make me part with $1,000 for a delicate slab of glass in my pocket. It reminds me of Microsoft after they ran out of useful ideas for Windows after version 7. Apple also suffered a serious reputation blow when it was found to be rigging the phones to perform slower as they age.

Dow Transports Hold On
According to the Dow Theory, if transportation companies do well, the market is fundamentally alright. 

Artificial Performance
As you know from Cme4pif School lesson 2 and my blog post A Warning About Experts, I think most hedge fund managers are a waste of time and an index ETF gives the same (or better) performance without the fees. 

You might recall that a few months ago a new ETF (Ticker:AIEQ) was mentioned here that was going to use Artificial Intelligence to pick stocks and outperform the market. This is an actively managed fund, but the stocks are selected by IBM's Watson (the A.I. computer of Jeopardy fame) using algorithms developed by EquBot. Well, let's see how it is doing (blue line), against the mid-cap-400 index (brown line). 

Yup, a huge investment in man and machine and predictably, we have created -- yet another so-so hedge fund manager. 

It is late in the Cycle
Generally, the markets go into recessions within a year or two if the Yield Curve inverts. After four years of relentless narrowing of the spread of short and long-dated Treasuries, we must consider an impending inverted yield curve. A reading below zero on this chart is an inverted curve, the light grey bars are past recessions.  From the looks of things we about where we were in late 2005. Don't panic, but it is late in the cycle.

All I Need is the Air That I Breath . . .
The American Lung Association has released its figures for cleanest air in America. No surprise small towns like Bellingham, WA far outpace big cities like New York and Phoenix. States with little population and manufacturing like North Dakota outscored California. It also helps to border Mexico or Canada.

Who's Your Daddy?
My how things have changed since Christmas, wanna bet on fake money now? 

Bill Nye and a Box of Cardboard
My brother became an Engineer in part due to building Meccano toys and I was introduced to electronics through a science toy.  Introducing Nintendo Labo -- a high tech company with a cleaver set of low tech add-ons. I love the concept, it might encourage a generation to "make things" again. 

Where the Rich Live

Starbucks Digg

What Works Now

Oil Related Firms do Well
As often happens under a Republican administration the price of oil is rising. Despite record high shale-oil output and a global glut of oil, the price of oil and companies that serve the industry have been heading up since the summer. (Ticker: DBO)

Enerplus Corp in Canada (Ticker:ERF)

Cyber Security ETF

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 are my picks for April, hold until month end.

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).

Thursday and Friday's sell-off is important because, as I pointed out on March 24,  the market has had a lot of weakness in key DOW 30 stocks but has been riding a narrower and narrower group of stocks up. These lucky few were the FAANG stocks. let's look at them;  Facebook and Google are up this week, but both are facing real issues as of user trust as questions of how creepy their spying has become. Amazon and Netflix (and Tesla too) are facing issues as they appear to have very poor (if any) profit considering their market leadership. The last hope was Apple, but iPhone sales are in a slump (see above).

We are seeing some strength in oil companies and other commodities like gold. Banks I would guess are do for a bounce too. But all this reminds me of 2007 as we entered the last phase of an economic cycle.  Or at least if you read the news that is what we see. It is still a bull market and this week our 100 series chart are decidedly aggressive. Now we have an interesting problem, technicals are telling this is a buying opportunity and to be brave. But this is no 2017, we are consolidating sideways. In fact, as of this week, we are 1/3 through 2018 and we are almost right back where we started the year. Plus that was the juicy months, we are now headed for "Sell in May" and another soft summer market.

Part of what is driving that aggressive reading in our charts is a broadening of the market (midcaps holding in) while classic defensive stocks (like utilities) are getting hit with interest rate sensitivity issues. So I am not just taking the aggressive reading on blind faith.  As I said last week when we talked about my long term 20 year view and volatility. Investors are already tired of this roller coaster.  I can't help you much here, I am dealing with the same issues you are.

Look at this last week, Apple (in Red) blew up, dragging the  cap-weighted S&P500 (black line) down. The defensive EFT in yellow did even worse, while the midcap 400 (Green) this week was the least affected because it holds no FAANG stocks.

Personally, for me, I am looking for a few creative investments in areas already hard hit. You must think a bit counter-intuitively. I have been bashing Canada for a while, but perhaps now it begins to look appealing... especially oversold areas. The Americans have not torn up NAFTA and employment looks robust.  Canada has commodities like gold and oil and can be a safe haven due to a long record of fiscal stability. Canadian Banks look like they may soon hit a support level. Gold is up about 14% from the 2017 lows, perhaps gold miners will follow? For example; Methanex (Ticker:MX) (recommended here March 17th) is performing very well, perhaps time to lock in a profit?

Parkland Fuel (ticker PKI.TO) has a little refinery in Canada but very little exploration risk and is buying oil at bargain prices and selling for top dollar. Mentioned here in the fall of 2017.

It might also be a good time to look at the broader market, like the midcap-400 stocks that have no exposure to the FAANG stocks. Also, it would be wise to hold some cash and some gold. 

Keep in mind, it is still a bull market and if the indicators are right, a good opportunity. You just need to be more selective and a little bit wary.

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