Market Thoughts – August 14th, 2016

It’s tough to find one positive thing about the world today, even the economy (despite what politicians and the Fed will have you believe). With all the negative news, especially a new attack of some sort every day, the market barely budges. We had another exciting August week with stocks up .30 points.

This continual grind higher since getting above ATHs in the S&P is very bullish. We haven’t seen much, if any, weakness at all. Unfortunately, with it being August I am not fully loaded long. Everyone seems to be bullish now as the smart money (commercial hedgers) are loading up on VIX futures.

vix-futures-cot-report-data-bearish-signal_august-10-750x373.png

I ultimately think we see a pullback. One I would hope that is not as severe as last August and can keep stocks above 2,134 in the S&P.

Screen Shot 2016-08-14 at 7.36.09 PM.png

I am bullish and think stocks are going to continue to set new highs. I believe the S&P can rise to 2,335.

The biggest reason for this bias is semiconductors and technology leading the way higher.

Screen Shot 2016-08-14 at 10.54.49 PM.png

I don’t know much about them, but they are the components that fuel technology. These are a leading indicator for tech and the market as a whole. We have broken out above 2015 highs, retested and continued higher along with a new overbought on the weekly 14-day RSI.

Screen Shot 2016-08-14 at 10.57.29 PM.png

Here is the S&P technology relative to the S&P building a base since 2000 looking to finally break out 16 years later. Not a negative.

Screen Shot 2016-08-14 at 10.59.05 PM.png
Heres the NASDAQ relative to the S&P, the leader since 2008 btw.

One can’t be negative on the market if the most speculative type industries are the ones performing the best. Remember markets are forward-looking.

I’d be wrong to not include everyone’s favorite stock: Apple.

Screen Shot 2016-08-14 at 11.00.37 PM.png

Apple is still a huge component to the overall market. Its trend and the US Indexes trends looks very similar right? Apple is 3% of the S&P, 10% of the NASDAQ, and 12% of XLK. Despite being down 25%, Apple is showing signs of strength and may be out of its bad phase. It never reached oversold on the weekly.

Sure they aren’t going to sell anymore iPhone in the US, but that doesn’t matter. The chart does.

Screen Shot 2016-08-14 at 11.02.33 PM.png

Another heavy weight: Microsoft. This, like Apple, is a heavy component of the overall market. It is 2.4% of the S&P, 8% of the NASDAQ, and 10.5% of the XLK ETF. With this challenging the 2000 Dot-Com Bubble Highs, it is not a negative.

Talking about speculative industries, I can’t exclude Biotech.
Screen Shot 2016-08-14 at 11.03.33 PM.png

Despite its major correction, Biotech was developing a bearish continuation pattern within its downtrend. This did not follow through and actually broke through to the upside. Whenever a move like this happens, it is an extreme positive. Don’t take it lightly. For its help to the NASDAQ and overall risk-on market environment, it is positive.

I think bonds are heading lower, which is a positive for stocks.

Screen Shot 2016-08-14 at 11.05.06 PM.png

Prices went above the long-term channel line with negative momentum divergence present and are now back below. This is called a failed breakout. It is also below early 2015 highs.

——————–

I have a feeling that the past year and a half was a stealthy bear market. Stocks can “correct” through price (falling x%) or through time (trading sideways/going nowhere). I think you can assume that here.

For example:
Transports were down 35%, Biotech was down over 50%, Technology was down ~15%, Consumer Discretionary was down 17%, Industrials were down 20%, Energy was down 50%, Small Caps were down 27%

While safe heavens Consumer Staples rallied 18%, Utilities rallied 28%, and Bonds were up 25%
. . . the S&P only fell 15% at its worst.

What is everyone expecting? Stocks to crash. I think the opposite happens. Money keeps flowing out of equities and into bonds, as the commercial hedgers are the most net short they’ve been since 2013. Will the next crash be in bonds, utilities, & staples and lead to the great chase higher in stocks? We shall see. Could this also be a major fake out? We shall see.

To finish here is a chart I found very, very interesting.

Screen Shot 2016-08-14 at 11.09.09 PM.png

Could 2015 to 2016 just have been a big range/stealthy beark market changing the opinions of everyone before we head higher? Very possible.

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