8-6-17 Market Commentary


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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 1.15 fell from 1.36 last week, yet continues within bullish territory. The total count of securities in bullish or bearish patterns increased 3% to 2944. The count of bearish stocks increased 13%, 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 ten 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 125 points for the fifth decline in fifteen weeks. At a positive 120.25 points, it continues below the six 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 two (2) Accumulation days 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: In a Woodie’s Up trend since Wednesday 7/19 close, the CCI(20) daily is now at 13.91, down from +55.79 last week. The CCI(20) daily is now within the +/-50 range for another ZLR (Zero Line Reject) Long entry signal, should it rise within the next few days.
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-six weeks ago, while the Daily CCI(20) began a Woodie’s up trend two weeks ago.
The CCI(20) weekly has fallen to +109.37, down from +133.27, 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: Oil, Banks, Brokers, and Retail on top; Some Tech on the bottom. Bullish: KBW Bank has left the bottom five. Brokers, KBW Bank, and S&P Retail have entered the top five. CompTech has left the bottom five. Gold & Silver PHLX has left the top five. Bearish: Computer Hardware and Disk Drives have left the top five and have entered the bottom five. Oil now leads the top five. Networkers has left the top five.
Focus this week: From www.zerohedge.comThe Real Dumb Money: Retail Investors Have Outperformed Hedge Funds By 300%“. The following are some key points and charts.

  • There seems to be an inverse relationship between an investor’s purported level of sophistication and their returns in recent years. At least, that’s what one might assume when comparing the historical aggregate return of US households with that of the hedge funds community.

    Using data from the Federal Reserve, Gaurav Chakravorty and Amit Sinha explained in a column for MarketWatch how since 2003, the average American household has earned a greater return on investment than the average hedge fund.  What accounts for this achievement gap? The two authors explain that households typically don’t invest their wealth like “day traders” or “return chasers.”

    They operate more like “skilled portfolio managers” who “appear to be rational actors.” In other words, they rarely adjust their portfolios.

  • The outperformance in household returns is due, in part, to their savings rate, which allows to build on their investments, and higher rates of diversification.

    “Households continued to steadily add to their savings over the study period, and their investments were evenly spread across many different assets — such as stocks, bonds, real estate and pensions — as opposed to being concentrated in a single asset, such as real estate.”

  • While real-estate has historically comprised nearly a third of household wealth, that dynamic has changed since the beginning of the bull market in 2009. Since the crisis, stock-market gains have been primarily responsible for repairing household balance sheets, instead of real estate.

    “Real estate hasn’t driven the repairing of household balance sheets. In the run-up to the 2008 financial crisis, real estate was one of the largest contributors to household wealth and represented about 32% of total wealth. After the financial crisis, real estate has been hovering close to the lowest historical levels at around 24% of total assets.”

    While this might sound surprising to some, the reason is because stricter lending standards adopted since the crisis have made it more difficult for people to become homeowners. Meanwhile, an increasing number of homes are being purchased by foreigners, or by real-estate partnerships.

    “Initially, this may appear surprising, given the run-up in real-estate prices in most parts of the country. However, a further analysis shows most households haven’t participated in the latest boom. Bank lending standards are stricter than before, with over 60% of new mortgages going to borrowers with excellent credit scores, as compared with only 25% before the 2008 financial crisis. In addition, an increasing portion of homes are being purchased by foreign buyers and real estate partnerships.

    When we combine these factors with one of the strongest bull markets since 2009, it’s why the stock market has become a bigger driver of household wealth creation than real estate.”

  • Going forward, mom and pop investors should be careful about managing their risk exposure, as a growing share of their wealth is being bound up with equity prices. At 35% of total assets, household allocation to stocks are near historic highs. Before the dot-com bubble, stocks represented less than 30% of total assets, but peaked at 38% during the height of the dot-com bubble.

–Donald Pirl www.s2pmarketsignal.com

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