7-9-17 Market Commentary



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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 1.29, fell from 1.19 last week, yet continues within bullish territory. The total count of securities in bullish or bearish patterns decreased 1% to 2837. The count of bearish stocks decreased 5%, while the count of stocks in bullish patterns increased 2%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now six 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) fell 16 points for the fourth decline in eleven weeks. At a positive 139.23 points, it continues below all seven tops above +100, and it continues above all four bottoms below -100 in the last 3 years. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume lower 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 lower average daily volume.

Momentum: The CCI(20) daily is now at -67.41, up from -107.67last week. At Wednesday 7/5 close, the CCI(20) daily had 6 consecutive days below zero for a change in Woodie’s trend to Down. We wait for the CCI(20) daily to return to the +/-50 range for another ZLR (Zero Line Reject) entry signal.
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 sixty-two weeks ago, while the Daily CCI(20) began a Woodie’s down trend this past week.
The CCI(20) weekly has fallen to 52.95, down from 76.30 last week. We await the return of the CCI(20) weekly to the +/-50 range for another CCI(20) weekly trade.
Industry Rotation the last two weeks: All of the top five industries are  positive and all of the bottom five are negative. Summary: Banks and Brokers on top; Gold & Silver and some Tech on the bottom. Bullish: KBW Bank now leads the top five. Brokers has entered the top five. Oil Services PHLX, and Oil have left the bottom five. Networkers has left the bottom five. Bearish: Gold & Silver PHLX now leads the top five. Computer Hardware has entered the bottom five. Disk Drives continue in the bottom five.
Focus this week: From www.alhambrapartners.com “The Hidden State of Money” by Jeffrey P. Snider. The following are some highlights.

  • Correctly interpreting the bond market is more than just how and when to invest your money in UST’s. Not that it isn’t useful in such a money management capacity, but interest rates starting at the risk-free tell us a lot about what is wholly unseen. There is simply no way to directly observe inside an economy what is taking place at all levels and in all transactions. We try to estimate as best we can in the aggregate, but the real economy works itself out far over the horizon.

    The closest we might get to a more accurate description is provided by market prices. Though incomplete by themselves, they are derived of the same dispersed knowledge of actual conditions. The bond market by its nature and its history is one of the best sources of information.

    The specific issue is, as always, opportunity. An economy’s monetary circumstances will always be described first in those terms.

  • This relationship between interest rates and the hidden economic money condition was first stated by Knut Wicksell in his theorizing about a natural interest rate.

    In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low. The rate of interest on money follows, no doubt, the same course.

    Milton Friedman much later stated it plainly as the interest rate fallacy. You can have all the central bank statistics you want claiming that money supply is “loose”, but if interest rates behave as Wicksell and Friedman ably described then in actuality the unobservable monetary condition in the real economy must be contrary to those numbers.

  • Inflation is at its core another proxy for opportunity, more of a lagging indication of its presence in the real economy and thus the successful dehoarding of money.
  • Through mostly the legend of Greenspan rather than actual monetary understanding, economists came to believe the Fed at the expense of the treasury market.

  • In almost every case, shown above, economists forecast rates moving upward based on perceptions of money through the lens of the Federal Reserve; even when directly contradicted by the bond market.
  • economists always assume that the Fed dictates monetary conditions, thus inflation as well as opportunity, when instead it has been shown time and again that it just doesn’t work that way. The hidden monetary circumstances of the US and global economy is displayed by bond yields, a fact that should have been considered the final authority rather than just dismissed in favor of a settled view of Greenspan’s legacy that even he wasn’t ever really comfortable with.

    If the Fed and the rest of the central banks had little idea what was taking place with money demand, they had no idea what was going on for money supply. In fact, they really didn’t want to know, preferring instead to focus on what Ben Bernanke would later specify as the “aggregates”; things like income, GDP, and most especially inflation rates. If those aggregates were well-behaved, particularly inflation, then, once again, it was simply assumed monetary policy was the reason.

    You can already see the conundrum for what it really was. If inflation or whatever other monetary characteristic was not well-behaved, where would the Fed even begin? That has been the history of the last ten years in particular, where once things started to go wrong none of the central banks had a real idea what it was that was wrong, let alone any further idea what to do about it.

  • In other words, the bond market is one of the few legitimate windows into hidden monetary conditions, and what it has said about the 21st century isn’t what economists and policymakers want to hear. The conundrum and its current revival are just that simple.

–Donald Pirl www.s2pmarketsignal.com

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