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June 09, 2018 – Weekend Market Comment

June 9, 2018 – Stocks rose slightly on Friday, but gains were kept in check with tensions between the U.S. and key trade partners increasing as the G-7 summit kicked off. 

The Dow Jones industrial average traded 50 points higher, as UnitedHealth contributed the most to the gains. The S&P 500 gained 0.2 percent as consumer staples rose more than 1 percent. The NASDAQ composite traded just above the flat-line. On Friday, President Donald Trump arrived at the G7 meeting, along with other world leaders — including those who currently govern nations that Trump has inflicted tariffs upon.

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 an upward trend. Also the current price is well above the 50-day moving average. Notice the second window, the slope crossed over zero decisively. That means we can expect good things to come. Splendid!  BULLISH Bull market -- expect bullish outcomes.

103 NYSE 52-week high low market forces
Breadth positive. Looks like steady improvement.  February dip below 400 on the second window, is not great but looks like we are getting past that danger, I would like to see second window break 200 for real enthusiasm. BULLISH

105 Aggressive Defensive
Aggressive!   BULLISH

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

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
Many Up Bricks. BULLISH

203 OBV
OBV (red line) rejoined the market then got a bit shy. The big boys have faith. BULLISH

207 VIX
VIX stuck near 13. CAUTION
209 VIX Evaluator
Down (good thing) in general. BULLISH

211 S&P500 over 50-day
68% of stocks are above their 50-day MA, above last week when it was 54%.  BULLISH
213 NASDAQ Summation
Breadth is strong. NASDAQ is on fire! BULLISH

215 Consumer Bonds vs Equities
Bonds fall a bit. Consumer stronger. 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 rising. CAUTION 

303 Sectors
Consumer stronger now than tech. BULLISH  

305 Nations
World awaits a trade war. 

307 Major Sectors
Commodities SPLAT! Gold is weak under this strong market and rising dollar. Emerging is weak. Only USA strong.

! = Pay attention this chart is important this week.

Oh NO... This Can't Be Good
The last two weeks I have been showing you some ugly looking charts from Banks in the U.S. and globally

Well this week the FDIC published this... and it is not good... the first uptick in since 2010 in their list of troubled banks. Dollar wise, it already looks like the summer of 2008.

LIBOR Why So Glum?
Banks loan money to each other each night to get through overnight shortfalls. This is reported in an interest rate number called LIBOR

LIBOR rates have been on the rise because the economy is getting stronger so interest rates should be getting higher. However the traders of LIBOR are pretty clever fellows and before the rest of the world smells trouble they often see it and loan at reduced rates, anticipating a lull in interest rate increase. Notice anytime LIBOR is flat to down the market reacts negatively a few weeks later. So why the flatter curve now?

Canada What Now?
As I have said many times the Canadian market is tied to the price of oil. Oil fell rather sharply over the last two weeks, but the long-term trend is up and some experts point to a near-term bounce up. 

In the chart below I show three windows, the top in the price of the Toronto 60 index. The second window is the ratio of the U.S. market (S&P500) and the TSX 60, it went up for years favoring Canada, as a better investment than the USA, then slumped after the price of oil fell. The final window is the price of West Texas crude oil. So as you can see, IF oil does now move higher -- Canada should do well.

Tech Map
Goldman Sachs sent out this map showing just how big the tech bubble is getting. When Microsoft is now bigger than the GDP of wealthy Switzerland you got ask yourself ... is it time to call this tech bubble 2.0?

This Time It's Different
This is interesting . . . Sears got complacent and greedy, in the 1980's when it adopted a “socks and stocks” strategy, buying into financial services like insurance,  a stockbroker -- Dean Witter, and Coldwell, Banker & Co., a real estate broker. It launched the Discover Card. It was all down hill from there.

In the 1990s eBay lost market share to Amazon when they got to busy expanding the use of PayPal as a global payment system. Then under Jack Welsh, G.E. set in motion its current trouble when it stopped making toasters and started leasing trailers and doing sub-prime financing.

Now according to Insurance Business magazine Amazon is starting an Insurance business, but don't worry folks... this time it's different.

Beware Nov. 8, 2018 
In November of 2018 some seats in the U.S. house come up for midterm elections. The vote will really say if the people want a stronger economy or a better worldwide reputation. The polls are saying that with full employment there is little reason to see a Republican sweep. The message in Washington might be to not support Trump. Wall Street worries that will be the end of the run, perhaps causing market reaction as early as September. 

The markets opened weak and finished strong on Friday as concern grew over what Trump would say to America's allies at the G7 summit.

U.S. President Donald Trump and Group of Seven leaders had a bitter exchange over trade tariffs, ratcheting tensions at LA Malbaie, Quebec G7 summit that he left early on Saturday before talks on climate change and the health of oceans, underlining fractures in the G7 exacerbated by U.S. trade tariffs.

In a harsh exchange between the leaders on Friday, Trump repeated a list of grievances about U.S. trade, mainly with the European Union and Canada, a French presidency official told reporters. French President Emmanuel Macron responded in a “courteous but very firm tone” to present the European side of the story, and Japanese Prime Minister Shinzo Abe chimed in as well, the official said. 

Before leaving Trump spoke via speech that was mostly geared to the U.S. public. "No tariffs, no barriers, that's the way it should be -- and no subsidies," the president said at a press conference. 

Yet the U.S. is the big industrial subsidizer in the the world. As an example through DARPA research contracts -- fat subsides keep U.S. defense contractors busy during lean years. Also the U.S. spends more on farm subsidies and global diplomatic scare tactics that keep U.S. goods flowing around the world. Trump seldom mentions that Marlboros and Budweiser would not be sold in Asia without extreme pressure and "development grants" or that defense contractors sell to Saudi Arabia in a tit for tat trade for oil to the U.S.  Trump can not see that France sells subsidized grapes, but America sells subsidized grains back to them or at least until now.

Benn Steil director of international economics at the Council on Foreign Relations said; "We are moving in the direction of a trade war. It's really quite remarkable. Despite the fact that the president's advisors have identified China as the villain of the peace on trade, Trump's tariffs disproportionately hit America's G-7 allies."

The Marshal Plan Turns 70
According to Bloomberg the Marshal Plan turns 70 this week. Trump's "beggar thy neighbor" approach to trade and diplomacy led to depressions and the catastrophic wars Marshall's generation had to repair. It is as if one U.S. President is now trying to undo all the hard work of building a peaceful Europe and global trade that Americans paid so dearly for in the 1940's

University of Michigan Solves Sonic Weapon Mystery
U.S. and Canadian Diplomats in both Cuba and China have been complaining of some kind of sonic weapon that makes them feel sick. New research from the University of Michigan says it might be an unintentional consequence from configuring covert listen devices wrong.  The devices in question would use ultrasonic sound to covertly monitor speech and transmitted on a frequency humans can't hear.  But if two transmitters, got too close, it could cause strange feedback.

Looking at a spectral plot of a clip, Kevin Fu, a computer scientist at the University of Michigan, noted some unusual ripples. He thought he might know what they meant. Through a series of simulations, Yan showed that an effect known as intermodulation distortion could have produced the AP sound. Yan was even able to embed an ultrasonic version of the Rick Astley song “Never Gonna Give You Up,” which became audible at the point where the two signals crossed.

Electronic Payments
This ETF from Global X tracks companies that allow you to ditch your cash for electronic bits of data (so the government can track you). Hot tech firms like Square, PayPal and WireCard. Up 75% in the last 18 months! (Ticker: FINX)

Tiny Startups with Gizmos to Save Your Butt
Wana get in on the ground floor of some amazing invention? The Invesco S&P SmallCap Health Care ETF specifically targets small-cap companies in the healthcare space. Over 3/4 of the fund is allocated to companies with less than $2.7B in market-cap. It tilts heavily toward healthcare equipment & healthcare providers, but not many drug developers. The good news is Government policy or possible trade wars are not likely to target these little firms.  Caution don't bet too big on this and use limit orders, it is too thinly trade to trade really big. Also one caution, recently this has had quiet a run, you might want to wait to "buy the dip" on this one.  (Ticker: PSCH)

Natural Resources
The FlexShares Morningstar Global Upstream Natural Resources Index ETF, invests in companies that operate, manage or produce natural resources in energy, gas, precious or industrial metals, timber or water. The upstream part means they might buy a cardboard box company as well as a timber mill or fuel refinery, not just exploration. Has a heavy concentration of big oil firms like BP and Exxon.  (Ticker: GUNR)

Print Your Own Stamps is kicking stogy old Pitney Bowes out of the lower end metered postage business and making a profit doing it.

Canada's Hot Stocks
Sure the Canadian markets look stretched and commodities pulled back but there is more to find in Canada.  The First Asset Morningstar Canada Momentum Index ETF looks for high performing firms in Canada. From casinos to distillers this is a very broad-based ETF, but it will go up and down fast so know your own risk tolerance.

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 June buy at last day of May.
50% EIRL Ireland (they are not in the news now)
35% EIDO Indonesia 
15% KSA Saudi Arabia (they have oil)

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

We have a Fed meeting next week which is expecting a rise in interest rates in the US and on Friday we have Quadruple Witching Options Expiration. I would guess a rise in U.S. interest rate is built into the pricing. But I am not so sure the American consumer is planning on higher mortgage rates.

The first hint of a summer rally appeared this week after the S&P500 cracked resistance at 2,780 and held the breakout.  The summer rally is often viewed as a 13% move from the lows in April/May to the highs before September.  This week the market made it about half way there at about 6% (see below).  

This is still a bull market with tech and small-caps in charge. Yes, prices of small caps and tech are getting quite extended. This is not bearish however, just overbought conditions increase the chances of a pullback or consolidation. The S&P 500 is looking very good on the Bull Bear Lines. Except for big banks, the U.S. market looks very happy.

The Canadian market is still highly tied to the price of oil. It has had a strong run but it may not continue. As elsewhere there is some ugly things going on in banking. The real estate bubble looks very fragile and of course there is the trade war. But for now, there are some great select opportunities.  The Canadian dollar is weak against the U.S. (77 cents) making exports attractive but strong against other currencies like the Euro. Canuks are making "Hollywood" movies, while brewing up rye whiskey and Canola oil at a profit, all while getting affordable health care, safer cities. As a bonus they are now even consuming fine Spanish Garnacha wine and Asian cars at bargain prices.

I am off sailing next week, so don't be surprised if next week, I don't post the Market Comment until Sunday night.

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