Category Archives: Stock Market

Ugly Pictures

By Biiwii

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.

tran

SOX held below the 50 day averages and is making a messy pattern.

sox

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.

bkx

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…

rut

Once broken, the Biotech index set its sights for lower levels.  It’s not there yet.

btk

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.

djinet

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.

China (FXI/FXT) Short

By Biiwii

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.

fxi

Perma Bear Article Mocked

By Biiwii

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…

Here’s how a stock market sounds when the bubble bursts

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.

comments

Risk Behind Buffett…

By Biiwii

Thanks to reader Mary, an excellent article at Forbes by John Tobey…

The Risk Behind Buffett’s Advice

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.

dow.cpi

A Bullish Argument Turns Out to Be Wrong

By Biiwii

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.

Opinion: A bullish argument for stocks turns out to be wrong

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…

More Americans Are Out of the Market Than In It

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.

Europe’s Risk ‘ON’

By Biiwii

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.

ewp.ewg

To de-complicate things, let’s also check out IBEX vs. DAX…

ibex.dax

After a correction Europe will be interesting again.

Momo Be Nimble, Momo Be Quick

By Biiwii

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.

hedj

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.

ezu

Biotech Passes Baton to Internet Stocks

By Biiwii

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.

ibb

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…

btk.ndx

Internets vs. NDX has been up trending for all of 2015…

djinet.ndxHere is the nominal DJINET…

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.

 

Chinese Stock Market: Trade Like a Pro in 1 Min!

By Biiwii

I don’t know how literal this is, but by way of SoberLook’s excellent daily email service of macro signposts, here is a look at a street vendor quick-teaching kids how to read trend lines and trade like Buffett.  I don’t think Buffett uses trend lines but I do think this is a shoe shine boy moment for the Chinese stock market, to one degree or another.

tradinglesson

Biotech Sector Still Leading the Market

By Biiwii

The Biotech sector just keeps on going.  Exhibit A is AMGN, which this space noted had a target of 174 back in March when the price popped above 160.  Here’s the updated chart from that post.  It’s had a subsequent drop and rebound, keeping 174 in view.

amgn

We had an NFTRH+ update on an interesting pattern in GILD (daily and weekly charts were analyzed for subscribers) along with an upside target and stop loss parameters. GILD has been forming this pattern for months now.

Today was also interesting because several smaller, more speculative Bio’s were weak while the big boys were strong.  Here is the updated chart of the Biotech ETF (IBB), near the top of its channel.

ibb

What’s it mean?  Simply that an important market leader is still fully intact.  On that note, here is the BTK secular bull vs. NDX chart once again.  This secular bull is 15 years old.  Read into it what you may.

btk.ndx

Faro; Time Was…

By Biiwii

In Q4 2014 NFTRH (+) presented for its subscribers a long/short trade involving FARO and HURC, respectively.  I never got on the HURC short because it turned down before my optimal shorting point.  But I did get long FARO for a nice and profitable trade.

The gist was that any late year revenue bump – per our analysis of traditional year end sales increases in the Machine Tool and related industries – would be an opportunity to long a great company like Faro for a trade and short an over valued vanilla company like Hurco.

Why short Hurco (and take profits on Faro)?  Because of the effects of the strong Dollar, weak Euro and weak Yen.  That is the play that everyone (incl. Mr. Druckenmiller a couple posts ago) is on these days.  But in Q4 2014 few were.  We were.  It was the pro-USD exports trade, which would hurt the likes of American companies like HURC and FARO.

Now, Faro is suffering currency exchange fallout and getting killed in the market.  Wall Street catches on as Needham downgrades to ‘hold’ and Noble to ‘sell’ on a revenue miss.  Just look at this mess…

faro

For the same reason NFTRH is following closely the correction of quality Japanese machine tool and robotics manufacturer, Fanuc, we will once again do the same with Faro, a company that is not going anywhere over the long-term.  It’s best of breed in its highly innovative niche.

But still, this is what happens when you follow the Wall Streeters that have never set foot on a machine shop floor.  But it should have been considered possible by these financial types because it is for strictly financial reasons Faro is getting blown up.  Check these tidbits out from the press release.  It’s not manufacturing stuff, it’s macro financial stuff…

  • negative foreign exchange impact of approximately $7 million driven primarily by the decline in the Euro and Yen relative to the U.S. dollar;
  • weaker macro-economic conditions in Japan combined with the limited release of manufacturing stimulus funds which, in turn, decreased industrial demand in Japan for capital purchases; and 
  • weaker industrial demand in Brazil due to recent macro-economic events.

In addition to the negative impact on sales, changes in foreign exchange rates are expected to generate net foreign currency losses of approximately $1.3 million related to the Company’s intercompany account balances denominated in different currencies, primarily the Swiss Franc.

Whoa!  That’s a mouth full.  Time was, you were a manufacturing guy, you were productive and you tended to your manufacturing business.  Time was, you were a financial guy and even if you were not fully versed in an industry and the underside of your fingernails was completely clean, you at least were a crack macro analyst.

Time was…