Archives for August 2013

Fox Business’ Markets Now

I am going to be on Fox Business’ Markets Now on Monday August 26 at 1:00pm.

The stock market began a small bounce last week and looks to continue that move this week. Yes, it’s the unofficial last week of summer although many schools have already started and many more begin on the 26th. Volume is typically light this week, but when a geopolitical event occurs like we saw in 2011, 2010, 2008 and 2007, volume will certainly spike. I always laugh when I hear that all of Wall Street is sunning and partying in The Hamptons and that the only people left are junior staffers. Gee, I guess that means they all helicoptered back when it hit the fan. What nonsense!

It’s relatively quiet now because earnings season ended and there are no major PLANNED events until the Fed meets next month to talk taper. Don’t think for a minute that just because August ends this week, volume and volatility will return. We have the Jewish holidays very early this year, just a few days after Labor Day.

While it looks like there is a temporary ceiling over stocks at the recent highs, we could still see a decent bounce on low volume.

Longer-term, the market is still trying to deal with junk bonds entering a bear market and the relative poor performance in the semiconductors.

I “hope” to have a full Street$marts out later this week.

Enjoy the final week of summer!

Paul

Big Correction Coming?

Stocks continue to trade very heavy, but we should be on guard for a strong bounce at any time here. I think the top is in for a while so bounces are now selling opps and a better buy point should be seen after Labor Day. To reiterate what I have said for a while, this pullback should not be the beginning of a new bear market, just another healthy cleanse in an aging bull market.

Here is the segment I did on CNBC’s Squawk on the Street the other day sharing my thoughts.

http://video.cnbc.com/gallery/?video=3000191113&play=1

Short-term comment:

It’s been amazing how fast the NYSE Advance/Decline line has plummeted from its recent all time highs. Coupled with the spike in new 52 week lows, you can really see some widespread selling, especially in the interest rate sensitive issues. Even if rates rise for the next 30 years, it won’t be a straight line and there will be some powerful countertrend rallies. Bonds could be the story for the last four months of 2013, but not in the manner everyone thinks!

Bull Market to Live On

The stock market continued digesting gains seen from the June 24 to mid July rally. So far, the consolidation has been constructive with the Dow Jones Industrials being the weakest index of the majors. Over the very short-term, the major indices should see a bounce but not exceed the all time highs seen in July. It’s too early to tell whether this will end up being an intermediate-term decline lasting well into September or short lived. One clue will be how quickly the indices regain what they lost on Thursday.

High yield (junk) bonds remain the biggest negative as they were hit hard in May and June but have only recovered half of what they lost. Trading sideways for the past week or so and lower for the past month is troubling for liquidity.

Given those less than rosey comments, the bull market lives on as I discussed in the latest Street$marts.

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20130812.pdf

CNBC’s Squawk on the Street

I am scheduled to be on CNBC’s Squawk on the Street on Friday at 10:30am discussing Thursday’s market rout, how much lower it’s heading and how to invest in this suddenly volatile environment.

Canaries Still Breathing Okay

I haven’t done a canaries in the coal mine update in a while, but with the major market indices hitting fresh highs last week, it’s time to check if any are dead. Remember, canaries in the coal mine are only useful at bull market peaks and bear market troughs. In other words, they are very helpful at spotting beginnings and endings of bull markets, but not much in between. They are so important because they usually give ample warning that a bull market is living on borrowed time as the canaries begin to die.

Let’s start with the major indices as they should all be in new high or fresh highs for 2013 territory. The Dow is first and you can see the all time from last week on the right side of the chart. 

dow

The S&P 500 (very large companies) is next and it, too, hit all time highs last week.

 s&p

The S&P 400 (medium size companies) is below and it is in line with the first two from above. The S&P 400 is usually the big leader during the mid stages of the bull market as many companies in this index experience their glory years or growth and financial stability.

mid 

The Russell 2000 (small companies) is next it saw all time highs last week. This has been the index leader since the June 24 low and pretty much entire bull market from 2009. There have been a few warning signs along the way, but they keep repairing themselves to health.

rut 

The technology laden NASDAQ 100 is the final major index and it has done a remarkable job at playing catch up, not only in the very short-term (since mid July) but also over the past year or so.

ndx 

In summary, all major stock market indices recently saw fresh highs indicating that the bull market is not close to ending. 

The Dow Jones Transportation Index is below and this serves two purposes. First, it’s a minor index after we look at the major ones. Second, old school Dow Theory offers that the Dow Industrials and Transports should be in sync during major rallies and declines to confirm the long-term trend. At bull market peaks like 2007 and 2000, we usually see one index fail to confirm the other’s price move. In other words, if this bull market were ending, we would either see the Industrials or Transports fail to make their final price peaks together. At this point, that’s not the case.

tran 

Turning to the bellwether sectors, the banks continue to lead and see new highs on each successive push higher in the stock market. This is healthy action. On a separate note as I mentioned on CNBC’s Closing Bell last week, the banks remain one of the most unloved sectors in the market in spite of their huge price gains and leadership role. I am not a fundamental researcher,  but if investors can look past the major players like J.P. Morgan, Citi and Wells Fargo where new government regulation may present some head winds, the regional banks and small banks may present some good opportunities, especially if a mergers and acquisitions wave begins.

banks 

With overall sentiment towards the banks negative, this group should continue its leadership role and be a good buy candidate after market declines.

The semiconductors present a much different picture. They are so vitally important because of their leadership in the technology sector and technology’s leadership in the overall stock market. The semis not only are a long-term canary, but also have some good predictive power for intermediate-term moves, something that would make a good article for the next issue.

 semis

I have to admit that this group can be a bit frustrating at times because it gives more warnings than any other canary and the only warning that really matters for the end of a bull market is the final one. As you can see below, the semis did NOT see fresh highs last week and their price is already creeping back into the range we saw during May and June. This is not good behavior and bears watching closely.

The New Stock Exchange cumulative advance/decline line is next. For newer readers, this simply represents the number of stocks that go up and down each day totaled over time. I have found it to be an excellent barometer of liquidity and overall market health even though its warnings can range from a few months to almost two years as we saw in the spring of 1998. Detractors will point to the number of non operating companies that litter the NYSE, but that’s exactly why I find this indicator so useful. Those non common stocks are typically closed end bond funds (CEFs) that are acutely sensitive to interest rates. The combination of common stocks and CEFs has proven to be a valuable long-term indicator when the major stock market indices march higher without the NYSE A/D line.

From the chart below, we see twin peaks in May and July, a very mild warning with price going much higher, but nothing that indicates impending doom. This is another canary that should be closely watched now.

NYAD2

Finally, let’s take a peak at high yield (junk) bonds as depicted by the PIMCO High Yield Fund. You can use any of the major funds or the ETFs. I just choose PIMCO because it is a very large fund with a long track record. Junk bonds are so important because they are acutely sensitive to ripples in the liquidity stream as well as the economy. They are at the bottom of the credit hierarchy and money typically flows out of the sector at the first sign of economic trouble or decrease in liquidity.

PHYDX 

You can see how the fund made its high in May and sold off dramatically into June. What is unusual is that this decline occurred without stocks cratering. In fact, high yield bonds saw more carnage than stocks. And as stocks vaulted higher in July and August, the high yield sector could barely muster a rally to get back half of what it lost. This canary appears to be dead for this cycle. If junk bonds rollover again and we the PIMCO fund in the mid 9.40s, I think that will spell at least some short-term trouble for stocks. 

In summary, the canaries are generally healthy with only one dead (high yield) and maybe two on heightened observation (semiconductors and NYSE A/D line). Before this bull market ends, I expect to see many more canaries on the dead list.

 If you would like to discuss how your portfolio is acting now or could behave if more canaries bit the dust, please contact me directly by hitting REPLY or calling the office at 203.389.3553.

Oh My! 3 Down Days in a Row!!

Should we break out the crash helmets? The market just went down three straight days! Yes, it was and is stretched, but there isn’t enough internal damage to warrant more than a routine, healthy and normal 3-8% pullback. A much larger correction is coming; it’s just not right now. If and when the major market indices close below the lows from August 7, we should see a deeper bull market pullback.

Here were my comments from the interview I did on CNBC’s Closing Bell.

http://video.cnbc.com/gallery/?video=3000188352&play=1

CNBC’s Closing Bell TODAY (Aug 5) at 4pm

I am going to be on CNBC’s Closing Bell TODAY (Aug 5) at 4pm discussing where the stock market is headed over the coming weeks and into September’s Fed meeting where the “taper” could begin.

Over the past few weeks, I visited Fox Business and Yahoo Finance. Regarding the Fed, here were and are my thoughts:

http://finance.yahoo.com/blogs/breakout/fed-meeting-tap-investors-await-bumpy-ride-112711784.html.

Big Jobs Friday

The biggest economic report of the month is due out at 8:30am on Friday. It’s become even more closely watched if that’s possible because of the Fed’s focus on the unemployment rate for scaling back their massive bond purchases and then raising interest rates. It is widely forecasted that tomorrow’s number will be good to strong.

What becomes very interesting for me is how the market would view better economic news. Is good news still good news or will we start to morph into good news is bad news because Bernanke’s easy money policies will be ending. This is what normally happens during the maturation of a bull market. At the end, good news or strong economic data is reacted to poorly because the Fed is on the verge of raising interest rates to slow down the economy and control inflation. I don’t think we have that type of good news on the horizon anytime soon, but today’s reaction to good data will be instructive.

Correction Coming?

Every month or so, I write an update on the market’s canaries in the coal mine to get a sense where the bull market stands. Nothing has changed on that front in that we having an aging bull market, but one that should live on through the next correction and probably into 2014.

As the market builds towards the next meaningful pullback, here are a few things to watch as I briefly discussed on Fox Business.

http://video.foxbusiness.com/v/2565939221001/correction-coming/