6-11-17 Market Commentary

 

 

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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 1.27 fell from 1.41 last week, remaining within bullish territory. The total count of securities in bullish or bearish patterns decreased fractionally to 3083. The count of bearish stocks increased 6%, while the count of stocks in bullish patterns decreased 5%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now three weeks in bullish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) rose 41 points for the fifth advance in seven weeks. At a positive 159.71 points, it continues below all six tops above +100, and it continues above all five bottoms below -100 in the last 3 years. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in Distribution mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had one (1) Accumulation day and four (4) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week the NASDAQ ended in neither Accumulation nor Distribution mode on higher average daily volume.

Momentum: Now at +41.06, down from +196.40 last week and dropping below +100 at Friday 6/9 close, the CCI(20) daily in a Woodie’s CCI(20) up trend ZLR Long trade simulation ends at Monday 6/12 open. At Friday 5/19 close after 2 days below zero, it formed a valid ZLR (Zero Line Reject) long entry signal for Monday 5/22 open. We will report the result of this trade simulation in next weeks commentary.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend fifty-eight weeks ago, while the Daily CCI(20) began a Woodie’s up trend twenty-nine weeks ago.
The CCI(20) weekly has fallen to 135.40 from 175.91 last week. We await the return of the CCI(20) weekly to the +/-50 range for another trade.
Industry Rotation the last two weeks: All of the top five industries are  positive and all of the bottom five are negative. Summary: Brokers, Banks, and some tech on top; Oil Services, Retail, and some tech on the bottom. Bullish: Networkers continues the top five. KBW Bank has left the bottom five. Brokers and KBW Bank have entered the top five. Oil Services PHLX continues in the bottom five.  Bearish: Semis PHLX and Disk Drives have left the top five. Oil and Gold & Silver PHLX have  left the bottom five. Comp Tech, Disk Drives, and S&P Retail have entered the bottom five.
Focus this week: From www.acting-man.comMeet The Three Headed Debt Monster That’s Going To Ravage The Economy” by MN Gordon. The following are some key points and charts.

  • If you recall, the Federal Reserve’s quantitative easing program concluded in late 2014.  The Fed even says it plans to start shrinking its balance sheet later this year.  So if the Fed’s not the source of liquidity for Treasury purchases, who is?

    Certainly, the People’s Bank of China and the Bank of Japan are popular Treasury buyers.  In fact, after selling part of its massive hoard of Treasuries in 2016, the People’s Banks of China is once again buying.

    And in addition to the Bank of Japan’s Treasury holdings, regional Japanese banks have been stocking up on Treasuries; over the last five years they’ve increased their holdings of U.S. Treasuries and other foreign bonds buy 80 percent.

    At the moment, mass infusions of new credit are also being injected from Europe.  Specifically, Treasury purchases are being prompted by the European Central Bank’s never ending quantitative easing program.
     

  • The problem, of course, is that U.S. consumer debt has gone parabolic since early 2009.  Student loans, auto loans, and credit card debt has all recklessly piled up to dizzying heights.  In reality, U.S. consumers have borrowed much more – nearly $13 trillion – than they can ever pay back.  Stagnating wages also exacerbate the problem.

    Matt Scully, at Bloomberg, clarifies the dilemma:

    “Americans faced with lackluster income growth have been financing more of their spending with debt instead.  There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes.  Household borrowings have surged to a record $12.73 trillion, and the percentage of debt that is overdue has risen for two consecutive quarters.

    “Some companies are growing worried about their customers.  Public Storage said in April that more of its self-storage customers now seem to be under stress.  Credit card lenders including Synchrony Financial and Capital One Financial Corp. are setting aside more money to cover bad loans.”

    Indeed, they’ll need plenty of money set aside to cover unpaid debt.  You just wait and see…

    Total US household debt (incl. mortgages) – at a new all time high as of the end of Q1 2017
     

  • The Three Headed Debt Monster That’s Going to Ravage the Economy

    Obviously, bad debt doesn’t just go away.  Over time, it metastasizes through the financial system like a wicked three headed monster.  At first it is subtle and no one really notices the hideous growth taking place.  But then, in the blink of an eye, the monster rampages through the economy leaving destruction in its wake.

    The three heads of the consumer debt monster consist of student loans, auto loans, and credit card debt.  What makes these debts particularly nasty is that there’s no collateral backing them. Where’s the collateral?

    The collateral for student loans is non-recoverable.  For it has been dispersed into oversized professor salaries, oversized lecture auditoriums, and oversized sports complexes.  Similarly, credit card debt has been run-up purchasing 72-inch flat screen televisions, avocado toast, and combination dinner platters at Applebee’s.

    How does a creditor recover the cost of a meal that was consumed 2 years ago? Technically, auto loans have some form of collateral.  The cars can always be repossessed.  But new cars lose value nearly as fast as fresh tomatoes turn to rot.  Presently, record levels of auto loans are backed by cars with negative equity – the debt owed is more than the cars are worth.

    The post-crisis car lending lunacy in all its awe-inspiring splendor – click to enlarge.

    What’s more, easy lending over the last 8 years has compelled more and more car buyers to roll their negative equity from prior loan balances into new loans.  On top of that, some amiable lenders only verified income on 8 percent of their auto loans.  Why bother with such inconveniences when the bad loans are being securitized in packaged debt offerings and sold to pension funds?

    The point is, this three-headed debt monster’s been constructed in earnest over the last 8 years.  Cheap credit, zealous creditors, and money-pinched consumers desperate to maintain their standard of living have built it up with reckless abandon.
     

  • Of course, the chief architects, the policy makers – particularly Bernanke and Yellen – provided the blueprint.  Remember, the almighty American consumer was to borrow all the cheap credit being sprinkled about and spend the economy back to optimal growth.  Well, the consumers did their part.  Yet the lame economic theories fell flat.

    Who would you like to feed to the three headed monster for breakfast?

–Donald Pirl www.s2pmarketsignal.com


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