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July 14, 2018 – Weekend Market Comment

July 14, 2018 – This week Friday the 13th worked out well with the S&P 500 hitting a 4 month high and the NASDAQ hitting a record high. 


S&P 500 posts best close since February, NASDAQ inches to record as Amazon gains. The S&P 500 posted on Friday its best closing level since early February as shares from some of the largest tech companies hit record highs.


The broad index climbed 0.1 percent to 2,801.31 as Facebook, Amazon and Microsoft rose 0.2 percent, 0.9 percent and 1.2 percent, respectively. Friday also marked the first time since Feb. 1 the S&P 500 closed above 2,800.





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. In the second window, we see slope is positive but fading slightly.  BULLISH Bull market -- expect bullish outcomes.
!
103 NYSE 52-week high low market forces
Breadth positive. February dip below 400 on the second window, is not great.
!
105 Aggressive Defensive
Aggressive -- but looks weak. The path of least resistance is up.  BULLISH 




Conclusion:
Long-term Investors: Stay the course it is still a bull market.
Swing Traders: Get back in your equity longs but beware the overhead resistance. 

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
One up brick. BULLISH


203 OBV
OBV (red line) is ahead of the market. The big boys are in. BULLISH 

207 VIX
VIX flirted about 12. BULLISH 
!
209 VIX Evaluator
Clearly down here. BULLISH


211 S&P500 over 50-day
67% of stocks are above their 50-day MA, rebounding from last week when it was 57%. BULLISH 

213 NASDAQ Summation
New all-time-high this week ...much better.  BULLISH


215 Bonds vs Consumer
Bonds down. Consumer steady? BULLISH 

217 Non-Farm Payroll
Lots of jobs! But beware this is a 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 a lagging indicator.  BULLISH



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





301 Bond Direction
Long-term bonds rising. BEARISH  

!
303 Sectors
NASDAQ strength, Consumers strong, financials suck. BULLISH

305 Nations
Canada tops, rest of world sucks.

307 Major Sectors
All weak only US strong. Gold is in a tailspin. BULLISH

! = Pay attention this chart is important this week.



Automatic Winner Picker
Tired of picking stocks? Well the IBD 50 ETF does it for you using the same method William O'Neil pioneered in the 1950's. 
The downside is the holdings costs aren't cheap—the fund charges a high fee, and its high-turnover strategy could lead to poor tracking and/or taxable capital gains payouts. 

You have seen this ETF mentioned in this blog many times, as a good choice as an aggressive pick for swing trading or as part of a buy and hold portfolio. So far this year it beat the S&P500 by nearly double. This week it is breaking out again. (Ticker: FFTY)

You could make a simple swing trade system out of this with these rules:
Step 1. Go to cash in a Bear Market -- in other words -- if Chart 101 the Bull Bear Lines are Red over Green. In a Bull Market (green over red) go to step 2.
Step 2. Place your equity funds into, DEF the defensive ETF unless both charts 103 and 105 are bullish then move all assets into the FFTY ETF.   

Caution: I have not back-tested that idea, it is just an example of how you could design your own swing trading system. My guess is it should outperform the market and have very low draw-downs.


Hard to Find Staff
According to the NFIB (a group representing small business) Staff are very hard to come by. We may finally be moving up from the paper hat economy. As bartenders get better jobs in the trades, many entry-level jobs are getting hard to fill.   


The search for qualified workers remains the biggest problem, some plan to increase compensation to attract workers. Twenty-one percent of small business owners cited the difficulty of finding qualified workers as their single most important business problem, only three points below the survey record. Thirty-six percent of all owners reported job openings they could not fill in the current period, up 3 points matching the survey record high set in November 2000.  To compete in the tight labor market, a net 31 percent of owners reported raising compensation, marking the sixth straight month it has been 30 percent (net) or higher.

Speculators in Palo Alto
Here is a listing on the Real Estate website Zillow this  880sq foot home in Silicon Valley is only $2.6 Million.

FAANG Plus One 
The year is half gone, let's look at the companies that contributed to most of the gains this year. You guessed it, FAANG (Facebook, Amazon, Apple, Netflix and Google) and toss in Microsoft.


Company
Percent of S&P 500 YTD returns
Percent of Nasdaq 100 YTD returns
YTD percent change
Amazon
35
41
49
Netflix
21
21
117
Microsoft
15
15
19
Apple
12
12
13
Alphabet
8
8
11
Facebook
8
8
16


In fact the S&P500 (like most of the world's stock markets) if you take out the six big FAANG stocks, was in negative territory in the first half of 2018. Also disturbing the best performing index was the NASDAQ -- but FAANG stocks now represent 50 percent of the market cap of the NASDAQ 100 index.

Some of these firms are screaming ahead -- Netflix shares are 13 percent above the average Wall Street analyst price targets issued at the end of last year.  An amazing a gain of 116 percent since January.

This is disturbing because as I mention in warning of 2017 these firms do not produce tangible goods, like Airplanes, chicken, power plants, cars, hamburgers, razors or drugs. Those firms that make that stuff here or abroad, are mostly in very weak positions. As I  pointed out in the Warning of 2017 some of the accounting practices of firms are dubious and profits are nil as in Netflix to possibly fabricated in the case of Amazon. Also Apple and Google face regulatory challenges as well as loss of market share. 

As the share buybacks continue -- Apple may be the first company in the world to top a $1 trillion market cap.  But as I said last year. Last year Apple investors became concerned because Apple had told its iPhone X suppliers that it only wanted about 40% of the components it had originally ordered, signaling weak initial demand for the flagship device.  Well now a year has passed since then and although not a flop, iPhone X is still not selling half as well as the iPhone7 did.

The Trade War is also an issue for Apple. China is Apple's second-largest market. China has a wide range of tariffs it can put on the iPhone and the state owns the telecom companies that pick the phone suppliers.



China Goes Nowhere
Chinese stocks are selling off along with there currency. So far in 2018, they are in a net loss.


Carrier On My Wayward Son
Remember the Carrier deal right after the election? Trump claimed he had saved 1,100 jobs in the company’s Indiana operations from being moved to Mexico. They recently informed the state of Indiana that it will soon begin cutting 632 workers from an Indianapolis factory. The manufacturing jobs will move to Monterrey, Mexico, where the minimum wage is $3.90 per day.

Putting aside the fact that he counted 300 positions that were never at risk, Carrier received $7 million in grants and tax breaks from the state of Indiana, and still laid off more than 500 people.

An EFT for Obesity?
The S&P500 is up about 14% in the last twelve months -- but do you crave an ETF that is up over 40%? Well then you will need to get slim, the SLIM ETF that is. The majority of SLIM’s holdings reside in the healthcare, and the treatment of complications associated with obesity (diabetes, high blood pressure, cholesterol, heart disease, stroke, and sleep apnea), but also includes companies that focus on weight loss programs, as well as plus-sized clothing. The top four holdings are three pharmaceutical companies like Novo Nordisk and even includes Weight Watchers. Let's face it these firms serve a "growing" need.  (Ticker: SLIM)

Roundup Causes Cancer, Bet You Did Not See That Coming?
Looks like those same fun loving guys at Monsanto (Now part of Bayer) are in a corner, as some 450 lawsuits are currently pending against the firm. Documents recently released shows executives knew Roundup caused non-Hodgkin lymphoma and there are leaked emails showing they tried very hard to cover it up.

To a reasonable degree of scientific certainty, it’s clear that glyphosate and glyphosate-based herbicides likely cause cancer in humans, particularly non-Hodgkin lymphoma (NHL), at real-world exposures including the levels people face when using the weedkiller."
- Former government scientist and plaintiffs’ expert witness, Dr. Charles William Jameson, Ph.D.

Some 20,000 people a year die from non-Hodgkin lymphoma despite a 70% survival rate. 
  


Roundup Ready crops are genetically engineered to tolerate glyphosate, the active ingredient of Monsanto's Roundup herbicide. Roundup is a broad-spectrum herbicide, meaning it kills any plant it falls on. Much of America's Soy and Wheat crops are now GMO Roundup Ready crops.

Well, at least we don't eat food swimming in Roundup daily . . . oh, wait, yes we do. :(

Ponder This
"Financial disaster is quickly forgotten. There can be few fields of human endeavor in which history counts for so little as in the world of finance."

    – John Kenneth Galbraith

Dog Loses Everything
This dog bought L Brands stock (Ticker: LB) a year ago... how does he feel... 



Ha Ha

Market Information
S&P Global (Ticker: SPGI) now organizes its businesses in very profitable units:

  • S&P Global Ratings -- provides independent investment research including ratings on various investment instruments.
  • S&P Global Market Intelligence -- news and analytics to institutional investors, iS&P Dow Jones Indices
  • S&P Dow Jones Indices calculates over 830,000 indices, publishes benchmarks that provide the basis for 575 ETFs globally with $387 billion in assets invested, and serves as the DNA for $1.5 trillion of the world’s indexed assets.
The bottom line... these guys are making a bundle. 

The Munchies
Sort of Uber Meets take-out -- Grubhub Inc. is an online and mobile food-ordering company that picks up food for drunk or lazy-ass diners. Based in Chicago, the company has more than 14 million active users who are too lazy to cook a meal. Users can select from some 80,000 restaurant partners in over 1,600 cities across the United States and the United Kingdom. The primary model (like Uber) is to shift the risk on to under-insured, underpaid, young drivers who don't understand they are operating their vehicles below cost. 

I guess as more states legalize weed -- sales can only get "higher". (Ticker: GRUB)

Hackers
Rapid 7 is the company behind Metasploit. A computer security project that provides information about security vulnerabilities and aids in penetration testing. Their new spokesperson is Stormy Daniels who knows a lot about being penetrated.  (Ticker: RPD)

Cure for Cancer
Verastem's drug, duvelisib, in trials, reduced the risk of blood cancer progression or death in patients by 48 percent. (Ticker: VSTM)

Canadian Oil
Energy is doing well, and the Canadian energy ETF could be a good choice (Ticker: XEG).



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 is summer and things are at a slower pace. Money is drifting into bonds and oil prices are rising. The tech side of the market is good with the NASDAQ hitting a high this week and things can't be too bad when that happens.

From the big picture, there are a few worries on the horizon. Globally the world is weak, global banks still suck and eventually the U.S. market will notice the earnings are falling at the global firms. We are of course still late in this massive bull market, with the current economic expansion now in its 109th consecutive month, and rapidly approaching the longest expansion in history.  

The press was on again about tight yield curves -- with yield curve just 25 bps away from inverting, the two questions asked by most pundits are i) are we "late cycle", and ii) when does the next recession begin, but curves invert month before a recession, so don't panic yet. 

Again I am concerned that too much money is chasing stocks like Netflix and that the rest of the market is drifting.  Chart 103 reflects this as mid-cap stocks get little attention and small caps are fading. The trade war is still a long way off as far as hurting earnings, there could even be a buying flurry of stocking up on inventory this summer in anticipation of the Trump tariffs. 

Chart 103 shows bonds are rising, that is not good news, but if you look at a ratio of the S&P500 vs the bonds, you get a chart like below. Equities outperform when the blue signal crosses the red average line. It now looks like we could begin a strong period for equities - I am optimistic. 

Most of those nasty concerns are not on the mind of the market right now. Today the big story is earnings are coming in nicely.  It is a bull market and this could be the next leg up but it may need a pause here. We closed Friday with S&P500 near the 2800 resistance level. I am hopeful we break out next week sometime. We are beginning earnings seasons -- things look good there.  I would expect a little rest to begin the week as the market thinks about what to look at next.


You can learn more about my indicators by visiting the CME4PIF school by clicking here.


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