I want to give a snapshot of where various items are at now that we’ve had a week of upward moves in some items and downward moves in others. While I don’t think a week is a long enough time to digest the momentum and knee jerk aspects of the election’s result, things have begun to smooth out a bit.
Copper is pulling back and this could be a proxy for all the infrastructure and materials plays out there we may look at over time as the Trump agenda comes into place. The knee jerk momo is getting worked off and a would-be copper hoarder would rather pay 2.47/lb. than 2.72. It has potential down to 2.25 to 2.30.
We noted the prospects for some items that got dropped post-election to rally. Using the FANG stocks, we noted buying opportunities for those whose fundamentals tell them that Trumponomics will not much harm these companies or that tax benefits will offset any other policy negatives. I bought GOOGL on Monday. Not a reco, just trying to lay out perspective on how I see the market (I am also making sure to take profits along the way as well).
Speaking of the market, we are more than half way through the week and still no give back on the broad indexes. What is happening is money is rotating. If we are going to be unbiased in reading our charts, this is bullish, period.
As for rotation, I like large tech, but also medical instrumentation and possibly energy. I’ve held CRY and CYNO since before the election and BSX was added after it. If the market remains bullish I just may add IHI as well. In other words, barring a new leg down in the markets to finish testing major support I don’t think IHI is going to go down to its support area in the 120’s.
XLE is wearing everyone out with this lame uptrend, but the moving averages are definitively crossed and if oil & gas hold support this thing could finally take another leg up. Look at the patience required after we caught the bottom and initial up leg. It’s gone from 67 all the way to 71 in half a year. Yes, that is sarcasm, or frustration.
I am realizing this update could turn into a full report if I am not careful, so let’s speed it up. I finally admitted my mistake (and loss) on Europe (it is still constructive to rise, but it never activated as a trade and I prefer other areas in the post-election environment), but Japan is looking better by the day. As of now, Nikkei has made a clear break above resistance. I continue to hold DXJ and the NIKK chart projects around 19,000 if the breakout holds and turns resistance to support.
Since many subscribers are precious metals intensive, I want to note that bounce or no bounce, things still look bearish. The metals and the miners are in downtrends. If gold and silver break new lows per the weekly charts reviewed in NFTRH 421 that will be it for the 2016 uptrend. That would open the door to Bottom Retest City. But for now, the bounce is still in play. I took a few profits and still hold some as well. But they are watered down into the greater portfolios, just playing a role. Again, there will be no gold bug style obsession here. As the markets are proving, there are other sectors!
I did not feel that today’s downside did much to dissuade further bounce, but the daily chart advises caution at around the declining 50 day moving averages. I am sure some wise guys will trumpet the Death Cross of the SMA 50 below the SMA 200, but that stuff is often met with a bullish move. So let’s look for resistance to start coming into play at 195-200 and then a higher caution area around 210.
Now, what about the macro funda? Well, the rising yields play is going strong in Japan. We have noted this to be bullish for Japanese banks like MTU and SMFG. Sure enough, they are popping hard, and this could be a lasting thing if the rebellion in JGB’s is real.
Here in the US I think we continue to set up for a contrary play in yields. Everybody now knows they are going up. Everybody’s all in. Please see this public post from today that updates the situation.
There is only .4% higher in yields before the Continuum (30 year yield) hits the target of 3.4%. Best to cool off now if there is going to be extension to this play (incl. banks, inflation, etc.) out in 2017. Either that or new paradigm, here we come (if the red dotted EMA 100 does something it has not done in almost forever, and fail to limit yields).
Indeed, inflation expectations are rolling over a bit…
But the market’s beneath the surface risk ‘on’ impulse is not rolling over as junk vs. not only Treasury (which everyone hates) but also junk vs. investment grade continues to ram upward.
Here is a key chart if you are a stock market and economy bull and if you are a gold bull as well. The signs here are better for the stock and economy bulls as cyclical Palladium is again on its bullish signal vs. counter cyclical gold.
I am going to stop shortly (I hope) but we should remain clear that yes, the proceedings have swung very bullish post-election, but no, we have not fully cleared the momentum and hype just yet. If this remains the case and actual fundamentals take the place of hype, the technically bullish stock market – or at least its more favorable sectors – will be the place to be.
We’ll end with a couple more charts for consideration. If I like tech, I like the Semis better.
And the Semis continue leading the broad market. Frothy? Yes.
Also, note the RUT vs. SPX. I took a loss on my IWM short because I simply would not stand up to the momentum beyond a certain point. Sure, this can be reversed. But one week into Trump mania, it has not been reversed.
Time is running out for the bears to get out ahead of this if they are going to put a stop to it. That is the fine line we are on between bullish animal spirits and any bearish activity. VIX is asleep as is the Equity Put/Call ratio’s trend. In very bullish markets momentum and risk go together. As of now, it’s all bullish and the best bet may be to continue to rotate into fundamentally sound items that took downside hits based on the initial Trump mania.
I’ll can it here. We’ll add new color in the weekend report I am sure.