alice

NFTRH; SEMI Bookings, Economy & Market Status

Note:  NFTRH 423 is likely going to be in abbreviated summary form, due to situations that have popped up for Thanksgiving weekend.  We’ll cover each of the usual report segments with some commentary and maybe even a chart or two.  But it will be compact compared to the usual.  Thank you for your understanding.

Folks, early in the year when everything seemed bearish and economic reports like Non-Farm Payrolls were weak, we noted the upward trend in Semiconductor Equipment bookings and remained firm through Brexit and ultimately, the US election.  It was our job – whether bullish or bearish biased – to be in tune with the market and the indicators.  This one indicator in conjunction with the stock market’s long-term uptrend has kept us bullish.

After noting the first upward move in SEMI bookings, we then awaited a trend of 3 months of increases to put the stamp of approval on the bull phase.  Today, SEMI has now established a 3 month downtrend.

semi

The entire report is linked here.  From SEMI…

“Total equipment billings increased 9 percent in October over September, while bookings contracted 5 percent,” said Denny McGuirk, president and CEO of SEMI.  “As the result, the book-to bill ratio for October dropped below parity for the first time in 11 months, even though bookings and billings activity remains at elevated levels relative to last year.”

Imagine that, the S.O.D. (Sons of Druckenmiller; my new term for politically biased market participants) are revving up bullish momentum on the Semis as the all-important Equipment bookings reading establishes a downtrend.  Now, this trend can certainly prove temporary and be reversed but the point is that we respected the uptrend and it should be no different going the other way.

For perspective, look at how aggressively the SOX is being bought now compared to the crickets we heard when we became bullish the sector last spring.  They hated the Semis when they should have liked  them and they are absolutely in love with them now.  As noted yesterday in a public post (which will often have information that dovetails with our analysis and strategies, so I suggest keeping an eye on the site) I took a well-earned profit on premier Semi Equipment company, AMAT.

sox

SOX monthly has coldly projected 930 and damned if it is not on its way (while at very high risk, in my opinion).

sox monthly

Now on to the other area of concern, the Small Cap mania.  In NFTRH 422 we dug up an old projection to 1378 based on a blunt monthly chart.  We also conjured up a lunatic target of 1500.  This is all substance abuse (with the original target certainly attainable near-term, given a mania) however, as the daily is channel busting up.  The price is already further above the 50 day averages than it ever gets and blow off dynamics are in play.  Folks, I do not have a single short position on the market, but I tell you this is not going to end well if this move accelerates from here.

rut

SPX daily has broken out to new all-time highs and is only moderately overbought.

spx

Meanwhile, we have coldly projected a target of 2410 on the SPX for months now.  This is not a broad market that is blowing off, it is just a market that looks very bullish.  The weekly chart calms things down and says the target is the target (an objective, not a directive).

spx weekly

Bottom Line

The leaders are in blow off mode now.  If you recall 1999-2000, these blow offs can go longer and go further than a rational person might think.  That is why I am not shorting anything.  What I am doing is rotating, taking profits on the ones that get stretched and looking to other areas of the broad market to use the proceeds.  All the while I am going to keep very significant cash levels.  Some good companies and sectors were knocked down by Trump mania and that is generally where I am looking to re-buy.  We’ve been noting several of these in NFTRH.

Also, in a mania there is a ‘Musical Chairs’ element in play.  The stock market is in my opinion entering its final stage and given reason, I would sell everything at any time if I feel that is the best course to 2016’s stated goal, which is to retain 2016’s profits.  But for now, things remain bullish with a developing mania in certain areas.  That signals that a terminal stage may be at hand.

Commentary

The Sons of Druckenmiller (S.O.D.) are a group that in my opinion really needs to be fleshed out for our market management.  I think it is no coincidence that the AAII have finally broken upward in their bullishness after all these years.  The stock market seems to have knee jerked and discounted Trump having already completed his job of supposedly making America great again.

I think a lot of sincere, hard working and honest people voted for this spray tanned media star and that is what we needed in order to manage the end of the bull market in stocks; Ma and Pa are buying in to the great American story.  It blows my mind that anyone could be bulling the market based on trickle down economics to come, not because said economics will not work but rather, because the market is not the same one Ronald Reagan inherited.  It is at all-time highs, right along with expectations.  It is also strenuously over valued by several data points.  Everyone is getting all in, things look bright (economically and market-wise, let’s keep aside for now the darkening social mood) and by definition, that is how bull markets end.

In my opinion, there are many who are going to pay for their political biases.  Back on the S.O.D. theme, in 2016 they resisted and rejected the massive bull market that continued under Obama.  They clung to gold right up to the election.  But now somebody is buying this stuff and it seems to have politics at its back.  These guys are likely to get creamed going the other way, being bullish the stock market and bearish (or out of) gold.  It’s how markets work.

For now, it’s all bullish (except risk ‘off’ items like gold and Treasury bonds).  For now.

To those celebrating, have a great Thanksgiving and to everyone else, have a great weekend.