9-10-17 Market Commentary


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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 1.09 fell from 1.17 last week, declining, yet remaining within bullish territory. The total count of securities in bullish or bearish patterns increased 1% to 2916. The count of bearish stocks increased 5%, while the count of stocks in bullish patterns decreased 2%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now two 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 103 points for the twelfth advance in twenty weeks. At a negative 60.38 points, it continues below the six tops above +100, has risen above the April 2017 bottom, and continues above all four remaining 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 higher than the prior week. In the last two weeks the NASDAQ had six (6) 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 also, the NASDAQ ended in neither Accumulation nor Distribution mode on higher average daily volume.

Momentum: On Thursday /7, the CCI(20) had 6 days above zero to begin a Woodie’s Up trend. The CCI(20) daily is now at +59.94, down from +155.92 last week. We wait for the CCI(20) daily to return to the +/- 50 range for a ZLR (Zero Line Reject) Long 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 seventy-one weeks ago, while the Daily CCI(20) began a Woodie’s up trend this past week.
The CCI(20) weekly has fallen to +108.90, down slightly from +109.99 last week when it formed a ZLR (Zero Line Reject) Long entry signal for Tuesday 9/5 open. Our rule is to stay in the trade until the CCI(20) drops below +100. 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 all of the bottom five is negative. Summary: S&P Retail, Oil Services, and Gold & Silver on top; KBW Bank, Brokers, and some Tech on the bottom. Bullish: S&P Retail has entered the top five. REITs has left the bottom five.  Bearish: KBW Bank continues in and now leads the bottom five. Networkers continues in the bottom five. Gold & Silver PHLX continues to lead the top five. Disk Drives and Semis PHLX have left the top five.
Focus this week: From www.realinvestmentadvice.com “Signs, Signs, Everywhere A Sign 09-08-17” by Lance Roberts

  • You don’t have to look very hard to see a rising number of signs that suggest the “Trump Trade” has come to its inevitable conclusion.

    Following the election, this past November the financial markets rallied sharply on the hopes of major policy reforms and legislative agenda coming out of Washington.

    Eleven months later, the markets are still waiting as the Administration has remained primarily embroiled in Washington politics with a divisive, Republican controlled, House and Senate. While there are still “hopes” the Administration will pass through tax reform, the failure to “rally the troops” to repeal the Affordable Care Act leaves permanent tax cuts an unlikely outcome. That hopeful outcome was further exacerbated with the deal cut between President Trump and leading Democrats to lift the debt ceiling and fund the Government through December. That “deal” has effectively nullified any leverage the Republicans had to strong-arm a deal on taxes later this year.

    The markets are figuring it out as well.

    If you want to know where the economy is headed over the next few months, you don’t have to look much further than interest rates. Since interest rates are ultimately driven by the demand for credit, and that demand is driven by economic growth, their historical correlation is no surprise.


  • But like I said, if you want to know where GDP is going to be in the months ahead, keep a close watch on rates. I suspect, before year-end, we will see rates below 2.0%. 

    As a reminder, this is why we have remained rampant bond bulls since 2013 despite the continuing calls for the end of the “bond bull market.”  The 3-D’s (Demographics, Deflation & Debt) ensure that rates will remain low, and go lower, in the years to come. Think Japan.

  • Like rates, inflation is also closely tied to the direction and trend of economic strength. While the Fed continues to hope for a return of inflationary pressures, the real strength of the underlying economy suggests something quite different.


  • But there is no better sign to watch than that of the US Dollar. The dollar is the representation of the world’s belief in the strength of the U.S. economy. A stronger economy attracts capital and investment which drives the dollar higher and further boosts economic growth. The opposite also applies.

    The recent decline in the dollar, which is likely to continue, suggests that economic growth will weaken in the months ahead.


  • While it is not hard to see, or understand, the correlation between these individual “signs” and the direction of the economy, we can see it even more clearly by building a simple composite. The composite below is the dollar, interest rates, and inflation as compared to nominal GDP.

    Currently, the composite index has turned down rather sharply and we should expect economic growth, to track along with it in the coming months.


  • All of these signs are worth watching closely. A weaker economy leads to weaker earnings growth and estimates are already under rather severe downward pressure. Given the overvaluation of the market, and hopes of legislative agenda beginning to fade, there is a significant risk to outlooks for the market in the months ahead.

    The last few times the dollar, rates, and inflation fell following a previous advance, the outcome for investors was not all that great.

    However, as I said above, we are indeed moving forward, but with caution.

–Donald Pirl www.s2pmarketsignal.com

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