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June 23, 2018 – Weekend Market Comment

June 23, 2018 – Rougher seas might be brewing. Stocks traded higher on Friday as investors tried to shake off jitters concerning trade tensions between the U.S. and China, with bank and energy shares rising.

The Dow Jones Industrial Average rose 172 points, with Chevron and Exxon Mobil among the best-performing stocks in the index. The Dow closed lower on Thursday for the eighth day in a row. If the 30-stock index falls again, it would post its longest losing streak dating back to 1978.

The S&P 500 gained 0.4 percent, with energy, materials and telecommunications outperforming. The NASDAQ composite, meanwhile, traded 0.1 percent lower as technology shares fell.




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 still above the 50-day moving average. Notice the second window, the slope is looking tired and going sideways.  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 more upward thrust, like the Canadian markets show. BULLISH
!
105 Aggressive Defensive
Aggressive.  TSI (first window) might roll over? Note: We might be getting a false reading due to an unusually weak DEF ETF.  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.

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
Look at this nothing but UP. BULLISH
!

203 OBV
OBV (red line) is way below the market. The big boys have lost faith. CAUTION

207 VIX
VIX flirted with 14 and drew back. CAUTION 
!
209 VIX Evaluator
A tick up but don't panic yet. CAUTION


211 S&P500 over 50-day
60% of stocks are above their 50-day MA, retreating from last week when it was 70%.   
!
213 NASDAQ Summation
A cross in the oscillator. Could signal a top for tech.  BEARISH


215 Bonds vs Consumer
Bonds flat. Consumer tops out? 

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, with a tiny downtick. 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
NASDAQ and consumer are flagging, but notice a big uptick in utility stocks. BEARISH

305 Nations
Emerging gets a tiny bounce -- Oh Canada -- look how strong on better oil.

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

! = Pay attention this chart is important this week.




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

Europe Off Life Support
The European Central Bank took a major step on Thursday toward winding down life support for the eurozone economy. Meeting in Riga, the Latvian capital, the central bank’s Governing Council said it would slow its purchases of government and corporate bonds in September, and then end the program entirely at the end of the year. The stimulus was essentially a form of money printing known as quantitative easing that helped prevent the eurozone from collapsing under the strain of a debt crisis.

The ECB said it did not expect to raise interest rates, which are at historic lows, until the fall of 2019 at the earliest. Mario Draghi, the central bank’s president, also held out the possibility that policymakers could still ramp up stimulus if needed.

GE Last to Go
American industrial Icon General Electric is out of the Dow Jones industrial average and will be replaced by drugstore chain Walgreens Boots Alliance. GE was founded from the holdings of  Thomas Edison and is the longest-running member of the DOW index of 30 stocks. It has been a continuous member since 1907, or 111 years. In the past year, its stock has been battered as the company overhauls its business. The stock is down 58% in a year and a half.


Consumer Staples and Value

Consumer Staples and value have been a bad investment for years now. Back in 2009, 22% of the S&P500 was defensive stocks like utilities and staples. Ah, we were so pious in 2009 -- nervous believers in profits, stable balance sheets and value. Since then with the FAANG rush, defensive stocks make up only 11% of the S&P500. Suddenly there is renewed interest in these defensive names. I mentioned last week Archer Daniels Midland and it continues to rise.  Also, steady earning from the Pharmacy chain CVS.

Here is Profitable Pharmacy Chain CVS

Here is the Vanguard consumer staples ETF. Gives you 2.5% dividend and exposure to stocks like Costco, Coke and Proctor & Gamble.  (Ticker: VDC)

Small vs Large
In most markets, small cap stocks outperform large firms. This is because they are often on the way up, growing in size and tight management. On the other hand, when people are fearful they want quality stable big names. The U.S. dollar also follows this formula, as people have faith in the U.S. -- dollars flow back into the U.S. and the currency rises. Also, big firms can be affected by macro problems, just look at Cat and GE unable to sell in global slowing markets. So if the U.S. $ goes up the small cap stocks like the Russell 2000 stocks should do better.

Let's create a ratio (chart below), the red line goes up as small-caps outperform the 500 big stocks. It goes down when the S&P 500 does better. Then in a second window lets look at the U.S. dollar value. I drew in the green arrows. You see the connection?

However, one trader I know says this is the limit of this U.S. dollar play. He feels the dollar will respect the November highs

It could retreat from here. Possibly boosting big companies or creating offshore strength. I am not sure...


ETFs Based on Hedge Funds
If you read my post called a Warning about Experts, I explain that most hedge funds don't outperform buying and holding the S&P500 ETF (Ticker: SPY) but in a bizarre twist ETFs are coming to market that mimic investment strategies of these aging experts. William O'Niels CANSLIM system (Ticker: FFTY) T. Boon Pickens oil plays (ticker: BOON) and new this week -- George Soros's former office boy, Jim Rogers, launches (Ticker: BIKR) a fund that selects country ETFs once a month. It sort of mimics what I do in the Rotating Nations posts, only he gets a 1% fee.

There are some 5,000 stocks traded on the big three exchange but only 3,000 of those really matter as far as volume and impact go, yet a year ago, there were 1,929 ETFs, with 284 of them coming to market over the preceding 12 months. Those numbers sound like a crowded market huh?

If you want more evidence this is the top just look at how many ETFs are formed, how many "Advisors" are working at your bank, how many get rich in stocks seminars there are and how many you people are on YouTube telling you what a smart bunch they are trading since 2010. For giggles, watch this video and listen to a Millennial show you how he is going to lose his family's $120,000 in savings. Spoiler: he buys worthless penny stocks on Yahoo finance news. It will all end in tears.


China's Investment Slows
According to the Rhodium Group, after a record 2016, Chinese direct investment in the United States dropped by more than a third (35%) in 2017 to $29 billion of consummated deals. In terms of new activity, the drop was even sharper – the value of newly announced Chinese acquisitions in the US dropped by 90% compared to previous year. Much of the decline was attributable to Beijing’s regulatory crackdown on outbound capital flows, but growing regulatory hurdles in the US – mostly more complications getting clearance from the Committee on Foreign Investment in the United States (CFIUS) – was the second punch to Chinese investors. 2018 is expected to be way lower, almost zero, the year is half gone and so far has not even reached only 2 billion in new deals.


Canadian Home Sales -- 7 Year Low
Last week the Canadian Real Estate Association had to lower its national home sales forecast for this year due to weaker sales in Alberta, B.C. and Ontario. The highly biased organization now expects home sales this year to fall 11% compared with a year ago to 459,900 units this year. The prediction compared with a forecast for a 7.1% decline the association released in March. The updated forecast came as CREA reported actual home sales in May hit a seven-year low as they fell 16.2% compared with a year ago. Since this is realtors "spin" talking, you know the real number is going to be a lot lower!

New Home Buyers are not Applying for Bank Credit
According to Huffington Post,  Canada's credit reporting agencies say Canadian youth are not applying for bank mortgages. 

But many feel it is more likely they are sourcing their money from private lenders who are not stress testing mortgages. In other words, there is a surge in unregulated, non-bank lending, just as the housing bubble pops, precisely what happened in the U.S. the last time there was a full-blown financial crisis.

Greenspan Says This Will Not Work
Allen Greenspan was on CNBC -- Squawk on the Street. He states the obvious, the USA is not productive, has too much entitlement and uses offshore debt to fund the economy with magic money. In other words, nobody is working hard enough to live this well.  2.5 minutes feel like 5 as Mr. Greenspan is clearly slowing down -- just like the global economy. 


A Cause for Celebration
On July 22, 1772 Slavery was outlawed in England. (Unless you are a currency trader on the Asian desk, in London)


Ponder This
"There is nothing reliable to be learned about making money.  If there were, study would be intense and everyone with a positive IQ would be rich. "
-John Kenneth Galbraith
WOW, What a Ride!
According to the Guardian Newspaper,  a novice trader named Harouna Traoré was practicing day trading on what he thought was a practice (paper) account. When he found out it was a live account he realized he lost over a million, he then traded that account to come back with over ten million pounds sterling in profit. But his big mistake was telling Valbury Capital, his brokerage what happened. They suspended his account and kept the money for themselves, claiming he had violated the rules. Odd if he had called after the initial loss I bet they would tell him he owed the whole amount back.  Of course, it is in court now.

John Oliver Banned
According to the South China Post Tweets from John Oliver are now banned in China. The post says; 
Oliver’s scathing parody of Xi on Sunday covered human rights abuses, “dystopian levels of surveillance and persecution” of Uygurs in China’s western Xinjiang region, the continued detention of Liu Xia, wife of Chinese dissident Liu Xiaobo who died last year in state custody, and online censorship, including memes comparing Xi’s figure with that of Winnie the Pooh.

“Clamping down on Winnie the Pooh comparisons doesn’t exactly project strength. It suggests a weird insecurity,” Oliver said.


Ha Ha 

Collaboration
Atlassian Corporation Plc is an Australian enterprise software company that develops products for software developers, project managers, and content management. It is best known for its issue tracking application, Jira, and its team collaboration and wiki product, Confluence. Atlassian serves over 60,000 customers. (Ticker: TEAM)

The Working Poor
Insperity, Inc., previously known as Administaff, Inc., is an employee outsourcing organization in Texas.

As the U.S. reached full employment -- firms need "drones" that can be replaced ASAP for menial jobs -- like scrubbing floors, hotel maids, in-store product demo and making jello in old-folks-homes.  Because nothing says career satisfaction like pushing prepackaged trans-fat d'oeuvres for $8 an hour. (Ticker: NSP)

A Lot of Nerve
AxoGen is a global leader in innovative surgical solutions for peripheral nerve injuries. AxoGen's portfolio of products includes Avance Nerve Graft, an off-the-shelf processed human nerve allograft for bridging severed nerves. This might be the hottest new thing on the market today. How often do you see 5 to 1 return in a year and a half?

AxoGen stock was added to the portfolio of a variety of institutional investors in the last month, including Wells Fargo & Company MN, BlackRock Inc., Eagle Asset Management Inc., Atlantic Trust Group LLC, Lord Abbett & CO. LLC, Lisanti Capital Growth LLC, Citadel Advisors LLC and Rock Springs Capital Management LP. (Ticker: AXGN) 

Hoarding
Life Storage operates 600+ self-storage units. As boomers age they downsize, but often have no place to put all the junk they refuse to part with. As one guy in this business told me, people will spend $5,000 over five years to keep hold of $800 worth of furniture boxes of old tools and rusting workout equipment. Storage units are also the perfect place to put the proceeds of crime until the heat is off.




If you want to put a segment of your funds outside of the U.S. let's look at some top performing nation based ETFs. 

Here are my picks for June buy on the last day of May and hold for the month.
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 weak cyclical bull market (since March 2018) within a near-record long, secular bull market (since early-2009).

It was a real wake up call this week. With 8 days in a row down, the Dow Industrials have lagged over the last 30 days, and are now slightly negative for the year.  Mostly from exposure to stocks with more vulnerability to trade tariffs like Boeing and Caterpillar. Also, the big banks are still not doing well globally (see GS below). The only good news is two Dow components are big oil and energy prices look to be firming. 

Much of America's "can't lose" iconic brands like Eli Lilly, Humana or Proctor and Gamble are considered good defensive stocks. But not now a trade war is brewing. Look at the Defensive ETF since February this year (Ticker: DEF).
 
Netflix hit an all-time high this week (see chart below), and Amazon traded over 200, understandably technology is probably taking a breather for the next few days.  


Important changes are taking place. We missed by only one day the longest losing streak in the Dows history. But it is wider than that. Take a good look at chart 203 and you will see the OBV looks weak, the big funds are taking profits this week, perhaps figuring we had our summer rally? Also, chart 213 looks very much like in a few weeks trouble brewing for the NASDAQ after this week hitting a new all-time high! This could be the peak of the FAANG trade for a while. I -- at a minim, expect some rotation out of tech into global stocks, emerging markets or healthcare, or worse, a summer pull-back.

It is still a bull market but it just looks over-bought. Long-term buy-and-hold investors don't worry. But for you swing traders, if you have a super high flyer that you want to take some profit in, this might be a good opportunity to lighten up a bit.

Summer is here ... go find a deck chair at the beach and spend some of your profits! :)



 
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