NFTRH; US Stock Market and Macro Fundamental Update, incl. Semi’s

While it seems to take forever for the S&P 500 to choose a plan (correction/bear market or resumed bull) some behind the scenes discussion can be helpful.  The market seems to have been trained to focus on the Fed’s policy first and foremost.  I don’t think a rate hike in and of itself would prove bearish.  In fact, it smells like a setup for a bull contrarian ‘buy the news’ type of thing.

But backing out the noise about the Fed we are left with flattening US corporate profits and a stock market trying to roll over, but still very near its all time highs.

corporate profits

As long as the S&P 500 has that ‘Dome’ on its head I am going to view the current market situation as a potential top of at least trade-able degree.  As a side note, I have noticed what I think is an unusual volume of articles and analysis finding bullish reasoning in current events ranging from the fact that initial rate hikes have not historically been bearish, to the bullish Nov-April seasonal, to a bullish Coppock Curve.  When this last one is pulled out and dusted off, you know they are scouring the world of indicators for those that provide the preferred message.

Regardless, as annoyingly long as it is taking to build out, SPX closed November still within the topping structure.  The SPX chart below and the Corporate Profits chart above cover the same time period, post-2005.

s&p 500 monthly chart

Within the corporate profit flatting noted above, we see that manufacturing – in light of the strong dollar – is decelerating as expected, and that non-manufacturing (and services) is rising, also as expected as the consumer puts his strong dollars to work.

manufacturing pminon-manufacturing pmi

But the services sectors are economic ‘back end’ stuff.  On the cutting edge have been the likes of the Semiconductor sector.  We have noted lately that the Semiconductor sector is showing signs of weakness (ref. book-to-bill ratio and my own contact, who guided us perfectly with respect to a coming up-cycle nearly 3 years ago).  Here, compliments of a subscriber by way of @SoberLook is a look at YoY global Semiconductor shipments weakening.

global semiconductor shipments

When considering the equipment sector’s book-to-bill and the ‘boots on the ground’ input that a slowdown is expected to last until late Q1 2016, I am going to look at a short stance against the Semi’s as a viable trade.  It will require patience, but in this market I am looking to ‘invest’ in something (as opposed to increasingly frustrating trading) and if that investment happens to be in a bear view, so be it.

Perspective is important here.  In early 2013 when the positive Semi view came on the table the SOX was just starting to negate a bearish looking pattern (and you wonder why we need to temper chart-only analysis, especially pattern-oriented analysis?) and begin its drive upward in line with fundamentals.  This was the first inkling of a better economic backdrop to come, but Wall Street took quite a while to get on the job and start selling it back to people.

semiconductor index monthly chart

Until proven otherwise, I am going to assume that today’s bullish activity in the Semi’s and elsewhere is just Wall Street being what it is, a trend follower.  Here I am using our own correct view that 3D Printing was a scam in 2014 and indeed, that Semis were bullish 3 years ago as guides.  Those views used fundamental analysis, not technicals.  The same goes for a developing bear view on the Semis now.

As to the chart of the SOX, 700, which was the rough target of the bottoming pattern (by daily chart) that formed off of the summer’s bear hysteria, is the measured target and also very key resistance.  I’ll respect technicals, but fundamentally (again, putting the Fed to the side for a moment) there seem to be some fundamental bear themes cropping up in the US economy and markets.

Just fleshing out some things that did not make it into the weekly report.