10-8-17 Market Commentary

 

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Market Breadth: With this past week’s market advance, our Bull/Bear Point and Figure Ratio at 2.22 rose from 1.75 last week, advancing into very bullish territory. The total count of securities in bullish or bearish patterns increased 4% to 3078. The count of bearish stocks decreased 11%, while the count of stocks in bullish patterns increased 13%. 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) rose 207 points for the sixteenth advance in twenty-four weeks. At a positive 698.64 points, it has risen above the April 2016 and July 2016 highs, and continues above the all four remaining tops, and above all five bottoms in the last 30 months. 

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 four (4) 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 Accumulation mode on higher average daily volume.

Momentum: The CCI(20) daily in a Woodie’s Up trend is now at 186.94, up from 142.38 last week. At Tuesday 9/26 close, the CCI(20) daily was within the +/- 50 range for a ZLR (Zero Line Reject) Long entry signal at Wednesday’s close and Thursday’s open. We will follow the results of this trade simulation in next week’s 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 seventy-five weeks ago, while the Daily CCI(20) began a Woodie’s up trend four weeks ago.
The CCI(20) weekly has risen to 174.25 from +119.54 from last week after forming 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 continue to 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 four of the bottom five are negative. Summary: KBW Bank, Brokers, and some tech on top; Gold & Silver, Oil, and Oil Services on the bottom. Bullish: KBW Bank, Brokers, and Disk Drives continue in the top five. Semis PHLX and Comp Tech have entered the top five. Gold & Silver PHLX continues in the bottom five. REITs has left the bottom five.  Bearish: None.

Focus this week: From DailyReckoning.comThe Only Russia Story That Matters” by Jim Rickards. The following are some key points.

  • The World Gold Council has reported that the Central Bank of Russia has more than doubled the pace of its gold purchases, bringing its reserves to the highest level since Putin took power 17 years ago.
     
  • Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Over 60% of global reserves and 80% of global payments are in dollars. The U.S. is the only country with veto power at the International Monetary Fund, the global lender of last resort.
     
  • Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defense is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.

    With gold, you can always pay another country just by putting the gold on an airplane and shipping it to the counterparty. This is the 21st-century equivalent of how J.P. Morgan settled payments in gold by ship or railroad in the early 20th century.

  • But Russia is pursuing other dollar alternatives besides gold.
     
  • For one, it’s been building nondollar payments systems with regional trading partners and China.

    The U.S. uses its influence at SWIFT, the central nervous system of global money transfer message traffic, to cut off nations it considers to be threats.

  • From a financial perspective, this is like cutting off oxygen to a patient in the intensive care unit. Russia understands its vulnerability to U.S. domination and wants to reduce that vulnerability.

    Now Russia has created an alternative to SWIFT.

  • The head of Russia’s central bank, Elvira Nabiullina, has reported to Vladimir Putin that “There was the threat of being shut out of SWIFT. We updated our transaction system, and if anything happens, all SWIFT-format operations will continue to work. We created an analogous system.”
     
  • Russia is also part of a reported Chinese plan to install a new international monetary order that excludes U.S. dollars. Under that plan, China could buy Russian oil with yuan and Russia could then exchange that yuan for gold on the Shanghai exchange.
     
  • Now it appears Russia has another weapon in its anti-dollar arsenal.
     
  • Russia’s development bank, VEB, and several Russian state ministries are reportedly teaming up to develop blockchain technology. They want to create a fully encrypted, distributed, inexpensive payments system that does not rely on Western banks, SWIFT or the U.S. to move money around.
     
  • This has nothing to do with bitcoin, which is just another digital token. The blockchain technology (now often referred to as distributed ledger technology, or DLT) is a platform that can facilitate a wide variety of transfers — possibly including a new Russian-state cryptocurrency backed by gold.
     
  • “Putin coins,” anyone?

    The ultimate loser here will be the dollar. That’s one more reason for investors to allocate part of their portfolios to assets such as gold.

–Donald Pirl www.s2pmarketsignal.com


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