In the previous post we tout a good call as we have done from time to time. There have been plenty of them. There have also been more bad trades than I’d care to mention, but will anyway.
I avoided taking a good profit in BCLI and instead took a loss. I tried to bottom feed FARO and it knifed me to a loss. I got smart with AMAT and took a loss on unexpectedly bad news. Luckily, none of these were NFTRH+ items; they were personal speculations. NFTRH+ is for setups, and low risk ones at that.
So this is the fair disclosure website that is not trying to sell you on anything other than that its (and NFTRH’s) owner is a hard working, honest market manager and that this is a genius free zone.
So on to DEPO. I have traded it very successfully over the last couple of years (hat tip to a subscriber who is very well up on it fundamentally). This time, I decided not to take profit prior to earnings and got hammered. It’s a modest position so now I am an investor and looking to add. The question the weekly chart asks is ‘will it bottom at the dotted channel or major support and the solid channel?’ Good question. Weekly log scale chart…
As previously noted, I have the potential to become distracted and busy elsewhere this week. So for that and market related reasons I am very lightly positioned (heavy cash).
But one position I hold is an NFTRH+ trade idea on Gilead. The ‘+’ update was produced before GILD reported its good earnings. It was based solely on the chart. It’s got a theoretical target up higher if this pattern is any good. I may take the profit at any time (or limit the loss if that becomes the play). GILD held up during the recent hard hit in Biotech, weekly MACD is triggering up and RSI is above 50. So technically, this thing looks pretty decent when viewed in a vacuum.
The ‘Apples to Apples’ European equities ‘credit spread’ (daily) chart (Euro unhedged Spain vs. Euro unhedged Germany) continues to sport a bullish pattern and so, I continue to have interest in Europe for when the current correction ends. I would like to see one more upside burst in the Euro (which remains bearish on the big picture), which could drive down QE-stoked European stocks to a theoretical buying opportunity. If the chart below is still intact at such time, it would be a positive divergence indicating that risk is still ‘ON’ in Europe.
The China short (via the leveraged YANG) is now covered (ref. May 5 post) not because I think it is not going to go up more, but because I am a chicken. I have never claimed to be anything other than a cash valuing risk manager. The heroic shorting is for others until I can get new longer-term trends. China’s trend, along with the US and others, is still up. Not talking about secular trends, but rather intermediate ones, defined here as multi-month.
In reviewing the chart of FXI, I see something similar to the European Euro hedged ETF and several other items (incl. a favored Japanese machine tool and robotics manufacturer that NFTRH subscribers know about) that may make good cases for re-buying, not shorting, eventually. There is some of this going on in US stocks as well. Think healthcare/biotech.
I don’t think the corrections are over with, but I am not ready to become a bear because I don’t see an intermediate term reason to yet. So it’s swing trading and cash defaulting for this chicken until trends change.
Back on the China 25 ETF above, it is not over sold yet but down the road, pending the view on the broad global markets, I am watching the area from which we charted the breakout in NFTRH. That would be around 42-44.
US Stock Market: Market Leaders Turning Ugly
Increasingly ugly pictures are showing up in market leaders and followers alike. Here are some leaders and/or items that are strategic to the followers.
Tranny has been diverging this mess for some time now.
SOX held below the 50 day averages and is making a messy pattern.
Bank index has been okay due to rising Treasury yields. It seems to be wondering right now whether the rising yields story might be over bought.
If the Small Caps keep this up they are going to break a very important (and heretofore bullish) support level best seen by weekly charts. Daily…
Once broken, the Biotech index set its sights for lower levels. It’s not there yet.
The Internets took leadership from the Bio’s last week… for about 10 minutes. It was not a good sign when they immediately flopped, now testing support.
I am by no means calling the market cooked. But I am hopeful that finally it can get its healthy correction. With the waning momentum, waning corporate earnings, waning economic data and waning supportive monetary policy (for now), such a correction, if it materializes, could be more than the small garden varieties we have had thus far.
For now, leaders are generally tipping bearish. We’ll just track day to day, week to week to see how it progresses.
In NFTRH, using the China 25 fund FXI and the FXT index, we successfully gauged the coming of the breakout and then attained upside targets. I personally did not take advantage of it but know some subscribers who did.
What I did do, as noted in NFTRH 341, is to take the ridiculous action of leverage shorting China via YANG. That is due to the ETF/index having gotten to target in an over bought condition and starting to hesitate.
Yesterday was not very pleasant for this position. Today is better, as YANG is working its leverage to an 8% gain. This will be a quick trade in all likelihood.
Every time the market twitches the wrong way MarketWatch puts up bearish headlines. The author of this article, Michael Sincere has been the most prolific…
He takes us by the hand and guides us through the particulars of the different kinds of bear markets. This kind of stuff has gone hand in hand with the bull market, which just eats it for breakfast. Still, there is one bearish thing here and that is the comments from readers.
Here are the most recent. One component that needs to be in place for a bear market is for people to have long-since tuned out the perma-bears, and instead to be mocking them.
Thanks to reader Mary, an excellent article at Forbes by John Tobey…
I found it interesting for several reasons. One is the use of log scale charts and their value in viewing percentage based prices over very long (a Century in this case) periods. I use mostly linear charts because I usually deal in 1 week to 10 year time frames. But Mr. Tobey’s assertion that long-term investors should be interested in percentage performance is a good one.
Secondly, adjustments are made to the market (in this case, the Dow) for ‘inflation’ and ‘deflation’ using the CPI as the denominator. CPI is noisy (e.g. faulty) on shorter time frames (it is not inflation, it is inflation’s effects), but over a century it is what it is after inflation and deflation have long since shaken out into the picture.
Here is his chart of the adjusted Dow. But read the article. It’s quick and to the point.
Often the mainstream media serve up almost insultingly lame stock market commentary (bullish and bearish). But Mark Hulbert, writing at MarketWatch highlights some data from Ned Davis Research that debunks the talk about all that cash on the sidelines just waiting to buy stocks. You hear that one in every bull market; how hated the market is and how an army of sidelined Nervous Nellies will finally buy in and propel the market higher still.
For reference, WSJ had an article that was presented as supportive of stocks because bull markets only end when the last hold out and the remainder of all that sidelined cash is sucked in…
So NDR went scouting for the cash pile. From Hulbert…
Davis looked for this cash in four areas. In each case, current levels are some of the lowest in history:
- Money market funds. This is the most obvious place where cash would be stored. But as a share of the total market cap of the entire stock market, current money market fund assets are very low by historical standards: 11.3%. Before the 2007 market top, the lowest this share got was 12.7%. Davis calculates that the current percentage is in the historical zone associated with annualized stock market returns of only 0.4%.
- Households’ free liquidity. Davis next focused on non-equity liquid assets, net of liabilities. As a percentage of the stock market’s total market cap, this free liquidity stands at 39.8%. That’s not only lower than what was registered at the 2007 top, it’s the lowest in 60 years with only one exception: the top of the Internet bubble. According to Davis, the current percentage is in the historical zone associated with minus 0.2% annualized returns.
- M2 money supply. Davis expanded his net even more broadly. As a percentage of total market cap, however, M2 money supply also is lower than at any time since the 1920s — again with just one exception: the top of the Internet bubble. It’s currently in the historical zone associated with 0.8% annualized returns.
- Credit balances in brokerage accounts. There was $285.6 billion of such balances at the end of March, which certainly looks like a big number. But Davis reminds us that there also is a record amount of margin debt in those same brokerage accounts — $476.4 billion. The net number is the lowest in history, according to Davis.
Final word from Hulbert…
What, then, are the 52% of households who are not in the stock market doing with their spare cash? One obvious answer is that many of them don’t have any spare cash. As Davis reminds us, “real median household income has plunged since around 2000.”
The bottom line? The data on sideline cash paint a far different picture than the headlines would otherwise lead you to believe. Far from supporting the bulls, that data actually back the bears.
Equity version of a ‘credit spread’ indicates risk still ‘ON’
That is not to say you should buy Europe right now, as the previous post made clear. But in looking at some charts I found Euro unhedged Spain to be in a bullish pattern vs. Euro unhedged Germany. So comparing apples to apples (not that I would buy anything Euro unhedged any time soon) it appears that risk is still ‘ON’ over there. Look… that’s a cute little pattern targeting the SMA 200 or so.
To de-complicate things, let’s also check out IBEX vs. DAX…
After a correction Europe will be interesting again.
The market is punishing stock market momentum traders left and right. The ones that momo’d the trend late, which by definition is most of them. Biotech, Small Caps and across the pond, the Euro markets are getting dinged for jumping on a story and pushing it too far. Europe markets hit NFTRH‘s targets (ex. EURO STOXX 50 to 3800) and over threw them a bit before keeling over.
Here’s the Wisdom Tree Euro hedged European stock market ETF. For me, HEDJ is of interest again down the road a bit (we were on it before the momo’s in Q4 2014). First it must finish correcting and the Euro bounce must fail.
Not so coincidentally the unhedged EZU is okay. We had noted that the Euro hedged trade was over but that maybe Euro unhedged might be okay. Well, if the Euro tops out the two could reverse roles again.
So, does Biotech break down this time? I did not then and do not now like that bull trap candle that got placed on the chart in March.
Bio has not broken down technically, but it has abdicated leadership to the Internets as we noted in NFTRH 340. Here are a couple charts of that situation…
First BTK vs. NDX continues to abdicate…
Internets vs. NDX has been up trending for all of 2015…
Here is the nominal DJINET…
The point I made in this week’s report is that stock market sectors are doing what commodity components used to do; they are rolling from one momentum-driven speculation to another Uranium→Oil→Copper→Silver style. Healthy? Nah. Is what it is? Yah.