9-3-17 Market Commentary

 

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Market Breadth: With this past week’s market advance, our Bull/Bear Point and Figure Ratio at 1.17 rose from 0.91 last week, moving back into bullish territory. The total count of securities in bullish or bearish patterns increased 3% to 2878. The count of bearish stocks decreased 9%, while the count of stocks in bullish patterns increased 16%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now one week 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 144 points for the eleventh advance in nineteen weeks. At a negative 163.55 points, it continues below the six tops above +100, continues below the April 2017 bottom, and continues above all four remaining bottoms below -100 in the last 3 years, including the newly formed August 2017 bottom. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had five (5) Accumulation days and one (1) Distribution day. (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: On Wednesday 8/16, the CCI(20) had 6 days below zero to begin a Woodie’s Down trend. The CCI(20) daily is now at +155.92, up from -43.32 last week. The CCI(20) daily now has 3 consecutive days above zero for a likely change of trend back to Up at next Thursday 9/7 close.
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 seventy weeks ago, while the Daily CCI(20) began a Woodie’s down trend two weeks ago.
The CCI(20) weekly has risen to +109.99, up from +43.07 last week and forming a ZLR (Zero Line Reject) Long entry signal for Tuesday 9/5 open. We will follow the result of this trade simulation in next week’s commentary.
Industry Rotation the last two weeks: All of the top five industries are  positive and only one of the bottom five is negative. Summary: Some Tech and Gold & Silver on top; REITs, KBW Bank, and some Tech on the bottom. Bullish: Disk Drives continues in and now leads the top five. Semis PHLX has left the bottom five and entered the top five. Brokers and S&P Retail have left the bottom five.  Bearish: KBW Bank continues in the bottom five. REITs has left the top five and entered the bottom five. Networkers has entered the bottom five. Gold & Silver PHLX continues to lead the top five. 
Focus this week: From www.Acting-Man.comHow to Make the Financial System Radically Safer” by MN Gordon. The following are some key points, a chart, and insightful illustrations (aka “cartoons”).

  • Curious skepticism can lead to the darnedest things, which is why Big Brother strongly recommends that citizens remain in a medication and cable TV-induced apathetic stupor. To make this happy outcome easier to achieve, stagnation in real wages was successfully introduced a number of moons ago; forced to work to exhaustion just to keep their heads above water, citizens tend to be more docile in their shrinking free time.
     
  • Last Friday, for example, Fed Chair Janet Yellen gave a speech to her friends and cohorts at the annual central banker’s powwow in Jackson Hole, Wyoming.  There she patted herself and the financial regulatory community on the back for what she believes has been a successful execution of financial regulations:

    “The events of the [2008] crisis demanded action, needed reforms were implemented, and these reforms have made the system safer.”

     How Yellen knows the reforms have made the system safer is unclear.  Like France’s impenetrable Maginot Line, the regulations Yellen lauds are backward looking.  They are suited to preventing the last crisis while ignoring new and greater threats amassing just beyond the horizon.


    If mouse traps were designed like our nifty new financial regulations, this is what they would look like. Don’t you feel safer already?
     

  • …alas, it’s no longer a normal world.  Years of abnormal monetary policy has fabricated an abnormal world.  Surely something will break before things are bent back into place, assuming they ever get there.
     
  • The Dodd-Frank Act, which was rolled out in response to the 2008 financial crisis, has turned out to be a classic case of knee-jerk regulatory overkill.  President Trump has promised relief to certain aspects of the Dodd-Frank Act’s suffocating regulatory regime, including stress test and capital requirements. These requirements force banks to keep more capital on their books as opposed to investing it in interest-earning assets.
     
  • But Fed Chair Yellen, a dyed-in-the-wool central planner, has a very narrow focus.  In her world, more control via more regulations always provides for a more stable financial system.  Yet [as the chart below shows] she’s dead wrong.


     

  • Barney Frank’s maze of regulations has made it harder for small businesses and entrepreneurs to access the capital needed to grow and create jobs.
     
  • At the same time, the new financial reforms haven’t minimized risk.  Moreover, they’ve set taxpayers – that’s you – up for a future fleecing.  Congressman Robert Pittenger elaborated this fact in a Forbes article last year:

    “Even Dodd-Frank’s biggest selling point, that it would end “too big to fail,” has proven false.  Dodd-Frank actually created a new bailout fund for big banks–the Orderly Liquidation Authority–and the Systemically Important Financial Institution designation enshrines “too big to fail” by giving certain major financial institutions priority for future taxpayer-funded bailouts.”

    What gives? Regulations, in short, attempt to control something by edict.  However, just because a law has been enacted doesn’t mean the world automatically bends to its will.  In practice, regulations generally do a poor job at attaining their objectives.  Yet, they often do a great job at making a mess of everything else.
     

  • Dictating how banks should allocate their loans, as Dodd-Frank does, results in preferential treatment of favored institutions and corporations.  This, in itself, equates to stratified price controls on borrowers.  And as elucidated by Senator Wallace Bennett over a half century ago, price controls are the equivalent of using adhesive tape to control diarrhea.

    The dangerous conceit of the clueless… the house of cards they have built is anything but “safe” and they most certainly can not “fix anything”. Listening to their speeches that seems to be what they genuinely believe. A rude awakening is an apodictic certainty, but we wonder what or who will be blamed this time. Not enough regulations? The largely absent free market? As they say, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
     

  • The best way to regulate banks, lending institutions, corporate finance and the like, is to turn over regulatory control to the very exacting, and unsympathetic, order of the market.  That is to have little to no regulations and one very specific and uncompromising provision:

    There will be absolutely, unconditionally, categorically, no government funded bailouts.

    Without question, the financial system will be radically safer.

–Donald Pirl www.s2pmarketsignal.com


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