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June 30, 2018 – Weekend Market Comment

June 30, 2018 – Well that was not exactly a week of sunshine and happiness as markets began the week with a swoon and the charts turned very cautious.

U.S. Stocks rose on Friday, the last trading day of the first half of the year, but still posted weekly losses as the underlying market sentiment was soured by anxiety over global trade frictions.

The Dow Jones Industrial Average up 55.36 points to 24,271.41, with Nike bringing a ray of sunshine. The S&P 500 gained a tiny 0.1 percent and closed at 2,718.37 as energy jumped 0.7 percent. The NASDAQ composite ended flat up a microscopic 0.1 percent to 7,510.30.


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 positive but going sideways.  BULLISH Bull market -- expect bullish outcomes.
!
103 NYSE 52-week high low market forces
CROSSOVER! Breadth negative. Looks like TROUBLE.  February dip below 400 on the second window, is not great. BEARISH
!
105 Aggressive Defensive
NEW -- Defensive. The path of least resistance is DOWN!  BEARISH 




Conclusion:
Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Get defensive, raise cash, review your bond and utility holdings, add some commodities. The path of least resistance is DOWN.

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
Black down Bricks! BEARISH


203 OBV
OBV (red line) is ahead of the market. The big boys are in buying the dip! BTFD -- Possible turn around point. BULLISH 

207 VIX
VIX flirted with 16 and drew back. CAUTION 
!
209 VIX Evaluator
Clearly up here, not good. BEARISH


211 S&P500 over 50-day
53% of stocks are above their 50-day MA, retreating from last week when it was 60%.   
!
213 NASDAQ Summation
A cross in the oscillator. Could signal a top for tech.  BEARISH


215 Bonds vs Consumer
Bonds way up. Consumer flat? 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
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 defensive and utility stocks. BEARISH

305 Nations
Commodities lift based on oil price.

307 Major Sectors
Gold is weak under this strong market and rising dollar. Emerging is weak. Some life in commodities. 

! = 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"


Ugly Global Banks
If there is one thing keeping me up at night it is this persistent weakness in global financials. The very biggest banks in Switzerland, Spain, China, the U.S., U.K, France and Germany all going down the tubes at once? I published this list months ago, but click for my current list of global bank charts and baby is it ever ugly. Despite a bull market, many are at two-year lows. My antennas are up! This is NOT healthy and we are not getting the whole story yet.


Vol Blow Up Redux
If the following gets a bit complicated, here is the take away -- big traders are possibly in trouble and markets may snap quickly as they unwind their positions. 

The markets were too stable in 2017 and a lot of bets on the VIX volatility, were on the wrong side -- betting that calm would continue in 2018, it did not. Now they are getting less stable, and many funds are still on the wrong side of the trade. As I predicted last August: "The Warning of 2017".   

Some insiders are expecting volatility ETFs to get hit in a spike so bad that the funds that track this go to zero. Lincoln Edwards you sly dog... Cutting edge Hedge fund  Houndstooth Capital Management has a sizable bet using options against the UVXY ETF and others are following the lead. Houndstooth did something like this before in the last vol spike and the return was 6000% in one trade.


China Has No Brakes
According to Bloomberg the Chinese government knows that 30% of its GDP is based on real estate development. If it stops lending to developers huge numbers of construction worker will be out of work and trillions of bucks in loans will default -- the economy will simply come to a halt. That development is mostly empty, lavish condos,  that basically are useless, for a nation of people who's GDP per capita ($7,000 a year) is about where Mexico is. 

"Developers are heavily weighted down with debt, much of it short-term. Many are paying out 7 to 8 percent bond yields, with debt-to-equity ratios of around 380 percent. "

They want to stop lending, but in fact, that is all that is to Chinese GDP or ever has been. 

In Hank Paulson's book, Dealing with China he explains how when he ran Goldman Sachs, he helped the Chinese government engineer this debt-fueled bubble and now the tab is due. A debt-based real estate bubble, like sunk Japan in the 90's and the USA in 2007 -- as I have said for years.

The Dragon Meets the Bear
We have been seeing happy news on the U.S. and Canadian Bull Bear Lines for so long you might think that is all they can do... but oh no, let's run a Chinese index on the Bull Bear Lines. Just look at the Shanghai index, so beat up you might call it the Shang-low index. This week it was down almost 22% since the February highs. While the yuan has slumped more than 3 percent in the past two weeks.

The official deleveraging campaign is reducing the amount of liquidity available -- curbing growth. Then throw in a trade war with the U.S., and investors are facing a long list of reasons to dump their holdings.


Official efforts to intervene, from cutting reserve ratios to B.S. press releases in media, have been rightly ignored. The market has been oversold for the past two weeks, the longest stretch since 2013, and so far the market swoon has totaled $1.8 trillion since the 2018 high. Bloomberg reported that one think tank in China wrote a memo about the upcoming all out panic. Clearly, the economy in the world's second-largest market is a big mess. 

Exchange director, Mr. Wiitulo did not respond to a recent inquiry. 

Corporate Peak Debt
This week the debt load for U.S. corporations has reached an all-time record -- $6.3 trillion of debt, according to S&P Global. If that debt was used to build factories or do research it would be one thing, but it was, for the most part, squandered on share buybacks. By reducing the "float" a companies stock naturally goes up in price, at least while the buying is going on. If I was a cynic I would think this was due to executive compensation being tied to stock options. The Harvard Business Review calls it Profits Without Prosperity.  For good part of public company history it was illegal for any firm to buy its own shares, these days everyone is doing it.

Buying stock distorts the price of the stock vs what it earns, the so-called P/E ratio. As you can see the blue dotted line, is where stock prices SHOULD be based on a fair value of a 15 P/E ratio. The red dotted line is an overpriced market with 20 P/E about 2,200. The black line is what we have now, (about 2,700). Banks are starting to refuse additional buy-back financing, also firms are experiencing little growth in earnings. With companies at max borrowing capacity and higher interest rates coming, this could be a cruel summer.


The World Exporters 
The good folks at HowMuch.Net have compiled a graphic showing the worlds global exporters, as you can see the darker blue countries should be the ones to fear a global trade war. The two biggest exporters? By far it is China and the U.S. 



I was fascinated with this chart and decided to get the population figures (Wolfram Alpha) of some of the countries and look at it per-capita. I also rolled Hong Kong into China, since it is a wholly own subsidiary. 


Nation
Exports
Population
Per Capita Exports
Netherlands
                   652,000,000,000
                 17,000,000
38,353
Germany
                 1,448,000,000,000
                 81,000,000
17,877
Canada
                   421,000,000,000
                 36,000,000
11,694
South Korea
                   547,000,000,000
                 50,000,000
10,940
Italy
                   506,000,000,000
                 60,000,000
8,433
France
                   535,000,000,000
                 65,000,000
8,231
United Kingdom
                   445,000,000,000
                 66,000,000
6,742
Japan
                   698,000,000,000
               128,000,000
5,453
United States
                 1,547,000,000,000
               320,000,000
4,834
China
                 2,813,000,000,000
            1,400,000,000
2,009

The per-capita export winner is the Netherlands, about 8:1 over the U.S. Now that's Holland ass  . . .

Harry Dent Says U.S. in Housing Bubble
Perma-Bear and Jack Lemmon stunt double -- Harry Dent, was back on YouTube saying that U.S. real estate is in another bubble. U.S. real estate bubble? Harry, have you been to West Vancouver? Anyway, his 11 min rant is worth a play.


Globally Equities in Sell-Off
Global equity funds have seen withdrawals of $12.4 billion in June, a level not matched since 2008, according to research firm TrimTabs. This is due to concerns that the worldwide global expansion is over, as well as some unwinding of what had been a very successful trade in global market stocks. Example here is the 2018 performance of the Vanguard World Fund (Ticker: VT)

You Go Now ... Money Laundry Moving In
According to McCleans magazine (see video below) residents who have lived many decades in North and West Vancouver are being forced to sell their family homes. It is all because of new higher NDP left-wing "school" and social taxes based on their +$3 million property values.


Through no fault of their own, the property prices have gone insane due to price wars from Canada open encouraging money laundering. Under Canadian law, ownership is easily obscured by lawyers making complex webs of Canadian number companies controlled by unknown offshore secret trusts. Much of that money hides in Toronto and Vancouver property. 




The just listed house below is on Vancouver's Nepal street right near a noisy freeway. A bargain, perfect for a growing family, says listing realtor Shahin Behroyan. This 60-year-old near teardown, needs some TLC, due to tenant damage and possible mold remediation. Only $2 million.  MLS: R2269925. 

Don't feel too bad -- at least the forced out residents will walk away with millions.

B.C. Wants Those Chips
According to trade website Casino.org  the Vancouver based River Rock Casino seized the chips of notorious money launderer Dan Bai Shun Jin. Now the government of B.C. has a launched lawsuit to get the money. The same web site previously reported that B.C. Casinos are a perfect place to launder money because the government is so inept.

Nothing New Under the Sun
This picture is a circa 1900 electric car.

This is a diagram of a purposed German solar power plant. . . from 1923.

So why is Elon Musk considered such an innovator?


Japan: 320 KPH Gaggin' Wagon
It is so cute you will want to puke! According to West Japan Rail, they will be operating a Hello Kitty themed series of bullet trains to increase tourism. I have no flipping idea how that will help.

Perhaps the Japanese should be discouraged from any creative/ascetic centered activities like, deserts, fashion, porn, advertising, dramatic movies and marketing. Please, just stick to serious stuff, like great vehicles, appliances, beer and banks.

Ponder This
". . . not everything that can be counted counts, and not everything that counts can be counted."
- William Bruce Cameron
Ha Ha


Talking to Robots
Software has been one of the powerhouse segments since the market bounced off the fall 2016 lows. eGain Communications, writes the popular eGain Virtual Assistant software. No one even in India, wants a call center job, so this software is a robot, "conversational agent" providing a way for users to get answers and assistance 24/7. You probably noticed one of these if you ever used an "On-Line Chat" button on a website. At least it keeps the very basic questions down and keeps people busy (frustrated?) while they would have been on hold -- until human staff can get to you. (Ticker: EGAN)


Trailer Trash
As all the houses get bought up for investments and the middle class, becomes the working poor, the only hope left for affordable home-ownership is a trailer park. Hopefully not near a tornado belt. 


Elkhart, Ind. based Skyline is a builder of manufactured housing and park model RVs, reported a 25% increase in sales from continuing operations during its third quarter. (Ticker: SKY)

Iran, You Ran, We all Run on Oil
Enerplus is a making great bucks sucking Texas Tea (Crude and Nat gas) out of Alberta and the U.S. (Ticker: ERF)




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 were my picks for June you should have sold on Friday.
50% EIRL Ireland (they are not in the news now)
35% EIDO Indonesia 
15% KSA Saudi Arabia (they have oil)


Well two winners that beat the S&P 500 and a stinker in Indonesia as they follow China down the tubes. It was not our big holding anyway. So.. not bad in a global equity sell-off.

Here are my picks for July (but be careful global markets are weak)

50% EGPT Egypt (probably can't get worse)
35% EWA Australia (not making trouble now)
15% RSX Russia (they are recovering and 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).

This week marks the end of the month, the quarter, and the first half of 2018. Some end-of-quarter book-squaring may be adding to the market's volatility. This week's negative chart action suggests that U.S. money managers are ending the quarter in a much more cautious mood. 

If you follow the Dow theory things do not look rosy with transport stocks tanking.  


Outside the U.S. especially emerging markets, it has been a disaster, 2018 marks global stocks worst start to a year since 2010, $10 trillion of global equity lost.


The negative breadth on chart 103 should give you concern, this seldom gives a false signal. We are still in a malaise since the negative 400 reading last Feb. 

Also as I said above . . . Global Mega Bank Stocks Should not look like this in a Bull Market. 

China has powered much of the world trade for years and it is in a tight spot now. The VIX Chart 209 is going the wrong way and the pros are nervous. Also be aware of the growing anticipation of a strong Democratic Party win in the November 8th Midterms. 


Right now we have Fed tightening, US decoupling, flattening yield curve, collapsing EM, outperforming levered quant funds. It all sounds like echos of the 1998 Asian Contagion. I think we could have real trouble by this fall.

This is a defensive Bull Market. I think a lot of smart money is moving to other areas like commodities, bonds and cash. There are also some select opportunities in companies to invest in, especially if healthcare and energy bounce here. You must be very selective where you are fishing right now. 

We might bounce up this coming week, but overall we are going sideways to down. I would shy away from speculation on technology FAANG stocks and I would not be fully invested right now.  But hey the 50 day is over the 250, the close Friday was even over the 50 day. That OBV line is impressive too. So don't be too scared. This is a Bull Market, and you must be optimistic. The last two days of this week were positive for U.S. equities, this still could be a surprise turning point. 


Happy Independence day and Canada Day this week!






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