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May 12, 2018 – Weekend Market Comment

May 12, 2018 – The Dow Jones industrial average rose on Friday as Wall Street booked a week of solid gains following a strong rally in energy stocks. The Dow also posted a seven-day winning streak. The 30-stock index closed 91.64 points higher at 24,831.17 with Verizon and Merck as the best-performing stocks. Meanwhile, the S&P 500 gained 0.2 percent to close at 2,727.72 as telecommunications and health care outperforming. The NASDAQ composite closed just below breakeven at 7,402.88. For the week, the Dow rose 2.3 percent — its biggest weekly gain since March — while the S&P 500 and NASDAQ climbed 2.4 percent and 2.7 percent.

Energy stocks led the way for the major indexes this week, climbing 3.8 percent. The sector received a boost from surging oil prices, which jumped after the United States pulled out of the Iran nuclear deal.





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 sideways trend. Notice the second window, the slope is negative but improving.  BULLISH Bull market -- expect bullish outcomes.

103 NYSE 52-week high low market forces
Breadth crossing positive again. Also a lot of recent red in the second window. Not good. As I said before, February dip below 400 on the second window, says a long-term danger of more pain to come. CAUTION  
!
105 Aggressive Defensive
Aggressive but later in the cycle.   BULLISH




Conclusion:
Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Remain aggressive. The path of least resistance is up. (You might ignore this signal until chart 103 improves longer).

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

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



201 Renko
Up Bricks. BULLISH

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

!

207 VIX
VIX near 13 and falling fast. BULLISH 

209 VIX Evaluator
Down -- that's good. BULLISH

211 S&P500 over 50-day
62% of stocks are above their 50-day MA, way above last week when it was 47% BULLISH

213 NASDAQ Summation
Breadth is strong. BULLISH

215 Consumer Bonds vs Equities
Bonds drop. Consumer flat. 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. But beware this is lagging indicator.  BULLISH



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





301 Bond Direction
Long-term bonds falling. BULLISH

303 Sectors
Tech strong on FANG -- NASDAQ rises. Banks catching a lift. BULLISH

305 Nations
Emerging is dead. Canada & Germany gets a lift in flight to quality. BULLISH

307 Major Sectors
Slow commodity lift, gold is weak under this strong market and rising dollar (could bounce back here).

! = 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"

Most Dangerous

Violence has surged across Mexico over the last decade after former president Felipe Calderon's government declared war against the country's powerful drug cartels in late 2006. In November 2017 alone, 2,212 murders were recorded, while 2,380 killings were carried out in October, making it the most violent month since the authorities began keeping records two decades ago. Some 190,000 people have died in drug-related violence since then. 

Here is a list of the most dangerous cities in the world -- most are in Mexico. 
 


The United States is 50 Countries 
As I pointed out in "Why I Believe in America" the U.S. is not a single nation, it really is more like 50. Here is a map with the U.S. states renamed after nations with similar GDP. For example, Texas is the same as Canada economically speaking, just with worse eating habits.




Oil
In case you have not noticed, 
Oil is doing very well these days . . .



What Works Now
Oil




Retail Software


Semiconductors



These ETFs are performing well:
  • Financial : KRE XLF
  • Energy and Mining: USO XLE XES XME CCX.TO HUC.TO
  • Technology: XLK SKYY HACK FDN XBI
  • Nations: EWU (UK) EWC (Canada)

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 May, hold until month end.

50% EWJ Japan
35% EWS Singapore
15% THD Thailand


What I Think
I think we are in a near record long, secular bull market (since early-2009).

As I said last week, the rally last Friday was impressive and it carried through with upward momentum this week. Breadth is getting stronger and we look like we are breaking out of our consolidating triangle to the upside. 


Stocks had a very good week. Major U.S. stock indexes had their best week in two months, with all of them gaining more than 2%. Small caps and the NASDAQ led the market higher. The S&P 600 Small Cap Index hit a record high, while the Russsell 2000 isn't far behind.

The new high in March for the NASDAQ is bullish and high techs -- leading in May. Both Internet and Semiconductor stocks are doing very well. It is also interesting that after a long sleep Biotech is getting a boost. Also this market is turning point as the equal weight S&P 500 ETF (Ticker: RSP) is outperforming the Cap-weight version (Ticker: SPY).

As I said before Canadian stocks are performing better than they have for some time. Despite well-known predictions of gloom -- Canada has a strong financial system and the economy is doing well as trillions have flowed into the world's most passive real estate money laundering hot spot. The new favorite is Montreal.

Canada's economy is tied to oil. U.S. benchmark crude-oil has soared steadily to its highest level since November of 2014, breaking above a level at $71 a barrel. Although a rapid burst up in crude could have knock-on effects for average consumers, driving inflation and prices higher, Californians are now paying $3  a U.S. Gallon for gasoline (.80 cents a ltr), whereas in Vancouver it is almost $4.60 a U.S. Gallon ($1.21 a ltr.) (All price in U.S. currency). But for the market, they are helping to deliver a jolt to Canada's  energy sector that was all but forgotten last year.

Two previously mentioned stock picks, Canfor forest products and Methanex Corp. are up strongly.

Some other old favorites are Pembina Pipeline, Bombardier, C.P rail and TD Bank. TD wisely has curtailed its mortgage lending business by shifting risk to second-tier lenders. I also think refiner Parkland Industries should benefit from the current conditions.

It is a bull market - expect bullish outcomes -- as this week showed that can always surprise to the upside. Although this was an impressive rally, we will need to stay above that "correction triangle" to keep upward momentum.

The VIX has dropped a lot this week, but my measure of volatility, the ATR of the weekly market is still in a high range so I expect more bumps ahead. It has only been a week since we had some real issues with breadth.  Also on the Bull Bear lines, our 50-day slope is still technically negative. Much euphoria is based on the statistics that say inflation is in check. Well that is nice, but with oil prices rising how long will that hold? Inflation or rate hikes are coming sooner or later, J.P. Morgan thinks 4% is coming. The market is expensive and debt levels are high, so don't celebrate too quickly.

Remain positive, but I would not expect next week to be up strongly, but who knows.   
 



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