10-15-17 Market Commentary

 

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Market Breadth: With this past week’s market fractional advance, our Bull/Bear Point and Figure Ratio at 2.05 declined somewhat from 2.22 last week, yet remained within very bullish territory. The total count of securities in bullish or bearish patterns decreased 1% to 3047. The count of bearish stocks decreased 5%, while the count of stocks in bullish patterns decreased 4%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now seven 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 29 points for the seventeenth advance in twenty-five weeks. At a positive 727.47 points, it continues above all six 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 three (3) 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 lower average daily volume.

Momentum: The CCI(20) daily in a Woodie’s Up trend is now at 105.09, down from 186.94 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, staying in the trade until the CCI(20) daily drops below +100.

 

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-six weeks ago, while the Daily CCI(20) began a Woodie’s up trend five weeks ago.
The CCI(20) weekly at +173.59 has fallen slightly from +174.25 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: Gold & Silver, S&P Retail, and some tech on top; Oil Services, KBW Bank, and some tech on the bottom. Bullish: Semis PHLX and Comp Tech continue in the top five. S&P Retail has entered the top five. Bearish: Networkers and Disk Drives has entered the bottom five. KBW Bank, Brokers, and Disk Drives have left the top five. Gold & Silver PHLX has left the bottom five and entered the top move.
Focus this week: From www.Barrons.com, “The Coming Renaissance of Macro Investing” by John Curran. This article provides an excellent gereral overview of what the Petrodollar is, why it is dying, and what that implies. Since S2P has covered these issues often in the past our Key Points below focus primarily on what is likely to happen next in the investing world.

  • The petrodollar system is being undermined by exponential growth in technology and shifting geopolitics. Coming: a paradigm shift.
  • Recent developments in technology and geopolitics, however, have already ignited a process to bring an end to the financial system predicated on petrodollars, which will have a profound impact on global financial markets. The 40-year equilibrium of this system is being dismantled by the exponential growth of technology, which will have a bearish impact on both supply and demand of petroleum. Moreover, the system no longer is in the best interest of key participants in the global oil trade. These developments have begun to exert influence on financial markets and will only grow over time. The upheaval of the petrodollar recycling system will trigger a resurgence of volatility and new price trends, which will lead to a renaissance in macro investing.
  • As China further forges relationships through its One Belt, One Road initiative, it will surely pull other exporters into its orbit to secure a reliable flow of supplies from multiple sources, while pressuring the terms of the trade to exclude the U.S. dollar.
  • In addition to agreeing to sell oil and natural gas to China in exchange for yuan, Russia recently announced that all financial transactions conducted in Russian seaports will now be made in rubles, replacing dollars, according to Russian state news outlet RT. Clearly, there is a concerted effort from the East to reset the economic world order.
  • The goal of the Fed is to “unwind” this enormous balance sheet with minimal market disruption. This is a high-wire act a thousand feet in the air without a safety net or prior practice. Additionally, at some not-so-distant future date, the U.S. will need to finance enormous and growing entitlement programs, and our historical international sources for that financing will no longer be willing to support us in that endeavor.
  • THERE IS a running debate as to whether trend-following is a dying strategy. There is plenty of anecdotal evidence that short-term and mean-reversion trading is more in vogue in today’s markets (think quant funds and “prop” shops). Additionally, the popularity of passive investing signals an unwillingness to invest in “idea generation,” or alpha. These developments represent a full capitulation of trend following and macro trading.
  • Ironically, many market players who wrongly anticipated a turn in recent years to a more positive environment for macro and trend-following are throwing in the towel. The key difference is that now there is a clear catalyst to trigger the start of the pendulum swinging back to a fertile macro/trend-following trading environment.
  • The ability to properly anticipate change is predicated upon detached analysis of fundamental information, applying that information to imagine a plausible world different from today’s, understanding how new data points fit (or don’t fit) into that world, and adjusting accordingly.

–Donald Pirl www.s2pmarketsignal.com


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