Canaries in the Coal Mine Part II – The Key Sectors

Moving to the four key stock market sectors from the indices I don’t see as strong a sign, but it’s definitely not a weak one yet. The bellwether for technology, semiconductors, is first and you can clearly see a sector that is “large and in charge” or “long and strong” to use some trading desk rhymes. This is very bullish long-term.

Banks are next and contrary to popular belief, rumors of their demise have been greatly exaggerated. Quite simply, the banks do not look bad here and would look outright powerful when they close above their September peak which they are on track to do.

The transports are below and while a longer-term chart would show a sector 20% below its bull market peak from 2014, the here and now looks wound up and ready to break out to the upside. There is sufficient energy built up in this group that could help lead the stock market on its next leg higher to 19,000.

Finally, consumer discretionary is below and I would have to rate it neutral at best. It has some work to do to regain a healthy grade.

The good news for the bulls is that none of the sector canaries are dead or on life support.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Make It Four Straight

For the fourth day in a row, stocks lost steam later in the day. While the internals continue to improve, price is always the final arbiter and the 6 week pullback continues for now. At the same time, gold is popping a little and crude oil just scored a one year high, both against a strong dollar which is unusual.

Both semis and software are bouncing from their first bout of weakness off the high while banks exploded higher on Wednesday. Energy was also a leader and transports are treading water just below their recent highs. The concern here is that the rest of the sectors don’t look so hot. They will definitely need to repair themselves before the next leg higher begins for stocks.

Regarding the debate last night, there was absolutely nothing said to impact the markets. Hillary looks like a 75-80% winner at this stage. All you need to do is look at the biotech sector as an inverse proxy for her victory. Trump still needs the Dow below 18,000 to have a shot.

For now, patience remains the operative word. Buy on weakness and prune into strength until proven otherwise. We need to see  few days where stocks close near their highs.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Another Gap. Trade & Fade?

After Thursday’s reversal, Friday’s early action looked promising as I left the office before lunch to celebrate my 15th wedding anniversary playing golf with some friends at Foxwoods before the wives met us for dinner and gambling. At least the dinner went well! However, as has been the case lately, opening gaps have often been the high or low point for the day as was seen on Friday as well as on Monday. This is certainly not a sign of great strength. One indication that the pullback is over will be when we get one or two days where stocks open higher and then continue to build momentum right into the close.

With Netflix beating earnings estimates by a wide margin and the financials continuing to beat, stocks look like they want to follow Europe and Asia at the open with another gap higher. On the Dow, S&P 500, S&P 400 and Russell 2000, all we are seeing is traders buying at the lower end of the range and selling in the middle of the range. The NASDAQ 100 remains stronger and the leader, but that too, is digesting.

On the sector front, it’s really more of the same although a touch weaker with semis and transports leading the leaders. The defensive groups, utilities, telecom, staples and REITs remain weak. Healthcare, which falls somewhere in between, has really taken it on the chin as Hillary Clinton’s ascension to the Oval Office has become much more likely lately. That’s also a reason why biotech has fallen more than 10% over the past month.

On the flip side, as I often mention, high yield bonds continue to scrape along just below new highs and the NYSE A/D Line scored an all-time high last month, indicating widespread and healthy participation in the rally.

Stocks remain in the same pullback mode I have written about for more than a month. While frustrating, it’s not necessarily a bad thing as the resolution should strongly to the upside above 19,000.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Is Pullback Mode Finally Over???

With yesterday downside break of the very obvious trading range in the Dow, S&P 500 and S&P 400, the pundits were all over this in the media. Just like I did yesterday, I often warn to be careful of a trap. Very apparent breaks of trading range will many times result in a quick and sharp snap back as I offered. In the short-term, that is exactly what occurred on Thursday as the bears got trapped in the first hour and the bulls pushed from there and into Friday.

While it looks pretty on a chart and all may now be fine again, I am a little hesitant to call for 19,000 on this move. I want to see more over the coming week. Yesterday’s close was a nice spot to add to longs or commit some cash.

Semis, while red on the day, finished at their highs and are following through this morning. The other three key sectors, transports, banks and discretionary, still have some work to do over the coming days. High yield remains very solid.

Have a great weekend!

If you would like to be notified by email when a new post is made here, please sign up HERE.

Stocks & Treasuries Looking to Diverge

With indications of morning weakness, the Dow, S&P 500 and S&P 400 will be breaking down from their six-week digestion patterns. Amazingly, for the past six weeks these indices have basically traded from high to low inside the range they saw on September 9 & 12.


This action does not change my thinking about a continuing pullback and not some large scale collapse. The first thing I want to see is whether this potential breakdown is held for more than a few days. Many times, indices break up or down from a widely followed range, only to see that reversed quickly and sharply in the days ahead which traps a large group of traders.

I also want to see how powerful today’s action is to the downside and if any sectors buck the trend. The defensive utilities, staples, REITs and telecom are the most likely candidates.

As I mentioned the other day, treasury bonds have been hit with the ugly stick and are trying to bounce back from the 200 day moving average which is just the average price of the last 200 days and a popular measure of the long-term trend. If the declines in treasuries is so strong, I would only expect a short-term bounce here as sentiment is now at a bearish extreme.


If you would like to be notified by email when a new post is made here, please sign up HERE.

Pullback Mode Remains the Short-Term Theme

My general theme of pullback mode for stocks continues in all of the major indices except for the NASDAQ 100. Gold and silver have been a more exciting story, but they, too, have paused since I wrote about them last week. Sector leadership remains very strong with semis, banks, transports and energy near their highs at the same time the defensive group has been weak.

I wrote about consumer staples looking especially troubled a few weeks ago and nothing has changed. They had been dynamite all year and became very expensive on a fundamental basis during the first half of 2016. Since then, their price behavior has been poor as it looks like big money has been quietly selling the rallies.

On the bond side, treasuries have been hit with the ugly stick and they are approaching an area where they are “supposed” to at least bounce. If they cannot, I would begin to argue that much lower prices are ahead and into 2017. High yield, on the other hand, just scored yet another new high last week. This continues to give me comfort that a bear market scenario remains off the table for a while.

With Yom Kippur beginning at sundown today and lasting through sundown tomorrow, I would expect liquidity to dry up later today as well as tomorrow. That could make for a quick exaggerated move. Finally, the old adage of Sell Rosh Hashanah and buy Yom Kippur ends tomorrow. Stocks are now about to begin the most favorable time of the year.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Canaries in the Coal Mine Part I – The Major Indices

For the past month, four of the five major indices have been in pullback mode after three of the five spent the previous month digesting gains from the huge post-BREXIT rally. While that theme continues today, I think the market is getting closer to resuming its uptrend with the Dow heading to 19,000.

Turning to the purpose of this article, I am going to first go through the major indices in the context of canaries in the coal mine to see what kind of shape they are in for the long-term. Then we will look at the four key sectors before finishing up with the NYSE A/D Line and high yield bonds.

For those new to my semi-regular canaries in the coal mine pieces, it’s my way to gauge the health of the bull market over the long-term. The stock market has corrected, 10%, 15% and even 20% without warnings from the canaries, but the canaries have always caught big bear markets. When we saw 10-20% bull market corrections, the canaries just tell us that the bull market isn’t over and to expect new highs at some point. This was the case during the 10-20% corrections in 2010, 2011, 2015 and 2016. And they were right each time.

The canaries did a very good job of warning about 2000 as well as 2008, however, keep in mind that they may give a few false warnings before the real one hits. It’s not a trading system and it really only matters when certain indicators are making new highs while others aren’t. I typically combine this with some really big picture indicators, like margin debt and sentiment, to fully gauge whether stocks are healthy or warning of a new bear market.

With all that said, let’s look at the major stock market indices. The Dow Industrials are first and you can see that along with the S&P 500 in the second chart, both saw their most recent highs in August.

The S&P 400 mid cap is next and it scored its most recent high in September which is good because this index usually peaks before the Dow and S&P 500 or coincidentally.

Below you can see the Russell 2000 which made a high with the S&P 400 in August and a slightly higher high last month, underscoring the market’s comfort level with risk in the small caps. The Russell usually peaks well before the Dow and S&P 500 as a new bear market begins.

Finally, the tech laden NASDAQ 100 is below and it just hit its most recent high last week. This is very supportive of the bulls over the long-term as this index is a leading bellwether

With the NASDAQ and small caps leading the major indices, the bull market is alive and well and not close to ending, regardless of what happens over the next day, week or month.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Gold & Silver Stocks Take a Pounding

Just a very quick post as I am in catch up mode from being out on Mon and Tues with the Jewish holiday as well as working on month and quarter end reconciliation and reporting for the next week.

The story of Tuesday was the collapse in gold and silver and the stocks. It was an ugly rout, but not unexpected given the somewhat bearish chart pattern below.

I wanted to point out that this 28% decline may be close to ending or at least pausing. The blue line on the chart is an old trend line that connected the April peak with the May peak and saw the June pullback end at that line. Extended out, the blue line is just below current levels for the GDX which is a basket of gold and silver mining stocks. Additionally, the pink line is the average price of the last 200 days which is a popular way to determine the long-term trend. Sometimes that acts as a ceiling or a floor.

The takeaway here is that we should be on the lookout for at a short-term look in the precious metals mining sector much sooner than later.


If you would like to be notified by email when a new post is made here, please sign up HERE

Sell Signal Closed Out. New Leadership Emerged

Today is the last day of the month as well as the last day of the quarter. The S&P 500 closed down -0.12% in August and is on track to close down in September unless the bulls can mount a major offensive, which I am not ruling out, and close above 2071. That means a down August and September for the S&P in a presidential election year, something not seen since 1956. You can put that in the category of useless info.

Last Thursday, I wrote about a somewhat rare trend that forecast weakness from last Thursday’s close through yesterday.

As you can see below, it was a pretty good five day trade of more than 1%.


While stocks sold off hard on Thursday with German banking behemoth, Deutsche Bank, collapsing even further, this is absolutely not a Lehman moment. Unlike Lehman which had no asset base to keep them afloat when the institutions made a run on the bank, DB has a huge retail network. I also do not believe Chancellor Angela Merkel will risk DB becoming insolvent with the election coming in 2017.

Anyway, stocks remain in pullback mode which I have been writing about for several weeks. Remember, pullbacks can some in two forms. One is for prices to decline quickly and somewhat sharply, while the other is to see less price weakness and more lateral movement over a longer period of time. I think we are seeing the latter right now.

I  keep talking about leadership changing and look what has been doing well during this pullback. Semis, transports and energy. These are new and bullish leaders for the bull market as the defensive group has now transitioned from neutral to outright weak. And, high yield bonds continue to hang in very well right near their old highs.

If you would like to be notified by email when a new post is made here, please sign up HERE.

Clinton or Trump? Who the Markets Want

The happiest moment of my Monday evening was when Lester Holt said, “that concludes the first of three presidential debates”. Talk about painful. I was SO thankful that I had picture in picture so I could also watch an incredibly entertaining football game between the Atlanta Falcons and New Orleans Saints. High scoring and lots of action.

I thought Trump started off so well and I actually naively thought that it was going to be a real debate about policy. Silly me! It devolved into a reality show on both sides. While the #TrumpWon hashtag is all the rage on Twitter this morning and supposedly the polls called Donald the winner, I thought Clinton won but nothing overwhelming.

Trump had her on the ropes with her emails and nothing to show for herself after decades in government. She hit him good with his tax returns and all the personal nonsense. Trump clearly did not prepare enough and Hillary’s overly rehearsed one liners were mostly bad. Trump should have stuck to Clinton’s open wounds and not let up. Emails, Benghazi, immigration, higher taxes, ObamaCare, Foundation, etc. And what was that sniffling?

Clinton should stop arguing and let Trump rant. He digs his own holes. Tax returns, helping those who need it most, business bankruptcies, etc. What was that cord running down her back into that box? A mic? Hidden earpiece? Medical device?

Trump once again attacked Janet Yellen and the Fed for being political, as if they want Hillary to win. More nonsense. Without any factual base, I would surmise that the Fed is probably skewed slightly right of center and I 100% believe they do what they really think is right for our country. You don’t have to agree with them, but I don’t think there is any hidden political agenda. Fed Governor Lael Brainard is the exception as she has made three public donations to the Clintons.  Brainard clearly has an agenda to get Hillary elected so Lael can either succeed Yellen at the Fed or Jack Lew at Treasury.

Additionally, Trump continued to attack the Fed for propping up the markets with low interest rates and creating the biggest bubble ever. I find that to be 90% bunk. As you know, “bubble” is the most overused word in investing today. Everyone in my ever growing clown parade of doomsdayers, Soros, Druckenmiller, Icahn, Zell, Fink, Gundlach, Gross, Faber, Auth, Faber, Yusko, Singer and Donald Trump continuously use the word bubble and it’s absurd. Bubble equals greed. Mom & Pop clamoring for a certain investment. I would like to know what is being clamored for right now? And no, it’s not bonds. People don’t buy bonds because of greed. If anything, they buy them out of intense fear.

And to repeat a statement I have made more than a dozen times already, the markets really don’t care who wins the White House. By that, I mean that the market celebrates or pouts in a range of -5% to +5%, which is a just a bit outside the normal historic range. On the surface, Hillary means more business as usual and the same slow, uneven and frustrating growth. Wall Street is fine with that. Donald is clearly a wildcard, but I believe it’s mostly bark and no bite as he would have to work with Congress. Wall Street would eventually warm to that.

I do think that a sweep of the Oval and Congress by the left would be the worst of all scenarios for the markets as gridlock would be gone and the government could actually get something done. While it may be counterintuitive, the markets like gridlock and don’t like when things can get done and change.

Finally, I do think that career politicians and bureaucrats are terrified by the thought of a Trump victory as their ability to buy their way (in one way or another) to those cushy posts will be all but gone. DC corruption would be in for some trouble. That’s why so many of the GOP are supporting Hillary. The devil you know. Take care of yourself first. Those comments can easily be extended to the mainstream media as well who overwhelmingly support Clinton.

The bottom line from my perspective is that I can’t believe anyone changed their minds from that one debate.

If you would like to be notified by email when a new post is made here, please sign up HERE.